DJ Wall Street Is Finally Getting Bullish About Mining. Here Are 2 Stocks to Buy. -- Barrons.com
By Al Root
Wall Street is slowly getting more bullish on mining stocks. That's good news. It's been a while since the sector had much to cheer about.
Large mining stocks Barron's tracks are down more than 50% from all-time highs, but the sector has bounced back some in 2019, up about 14% on average. Still, that trails comparable gains of the S&P 500 and Dow Jones Industrial Average.
The reason for improved sentiment is linked to iron ore and copper, two key metals for global miners. Wall Street believes copper prices will improve and believes iron ore price gains are sustainable.
On Wednesday, Jefferies analyst Christopher LaFemina upgraded Vale (ticker: VALE) to the equivalent of Buy from Hold. He has a $16 price target for shares, more than 27% higher than recent levels. Iron ore and copper supply/demand fundamentals are key to his call.
He's not the only one recommending mining stocks. In November, Bank of America Merrill Lynch analyst Timna Tanners upgraded Freeport-McMoRan (FCX) to the equivalent of Buy from Hold. She believes copper prices can stay elevated, in part, due to labor disruptions in Peru and Chile. Both countries produce huge amounts of the red metal.
And early in December, RBC analyst Tyler Broda upgraded Rio Tinto (RIO) to the equivalent of Hold from Sell. His view of iron ore pricing factored in that upgrade, although he stopped short of recommending the stock.
These are a few anecdotes. In aggregate, about 50% of analyst ratings on large, diversified miners are Buy, about 5 percentage points below the average buy-rating ratio for stocks in the Dow. Analyst sentiment, however, has improved. Albeit slowly. About 47% of analyst ratings were Buy a year ago. And the average buy-rating ratio was 46% in December 2017.
Steelmaker AK Steel (AKS) is also catching a lot of upgrades lately. That's also a mining call. The company is being taken over by iron ore miner Cleveland-Cliffs (CLF). On Wednesday, UBS analyst Andreas Bokkenheuser upgraded shares to the equivalent of Hold from Sell. Last week, J.P. Morgan also upgraded AK stock to Hold.
If Cleveland-Cliffs can achieve targeted cost savings and iron ore prices stay high, investors might be able to win two ways on that stock.
Shares of Cleveland-Cliffs and AK Steel were each up about 4% in recent trading. Vale stock was up 2.2%, Freeport-McMoRan stock was up 4%, and Rio Tinto stock was up about 2%.
Write to Al Root at allen.root@dowjones.com
(END) Dow Jones Newswires
December 11, 2019 15:12 ET (20:12 GMT)
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