Commodities have largely been in a bear market over the last decade and the pandemic led energy firms and miners to cut budgets, observes Carl Delfeld, editor of Cabot Global Stocks Explorer.
Capital expenditures fell about 40% in the first half of 2020. But now demand is rebounding, and supply is scrambling, leading to an uptrend in commodity stocks seen as a hedge on inflationary pressures.
There are three excellent plays to consider: Freeport-McMoRan (FCX), Rio Tinto (RIO) and Anglo American (NGLOY). Freeport has already made a major move and it seems to me that Rio Tinto probably offers us less upside relative to risk, so I’m recommending Anglo American, which is in a strong uptrend and has a diverse portfolio of assets.
Anglo American is the largest producer of platinum with about 40% of the world’s output. It also engages in exploring, mining, and processing various other metals and minerals worldwide. The company explores for diamonds, copper, platinum group metals, coal, iron, nickel, and manganese ores.
Anglo American plc was founded in 1917 and is headquartered in London, the United Kingdom. The company has a fascinating history, beginning as a gold company founded by Sir Ernest Oppenheimer with co-investments from JPMorgan and other U.K. and U.S. investors.
The stock has a primary listing on the London Stock Exchange with a secondary listing on the Johannesburg Stock Exchange.
Anglo American is more diversified than either Rio Tinto or BHP Group, combining a large copper business with significant exposure to rare assets such as palladium, plus diamond assets, reflecting its ownership of De Beers.
The company is a big and expanding player in copper; its large project in Peru is one of the world’s few new copper mines. The commodities sector and Anglo seem to be coming out of pandemic-focused 2020 with some momentum.
Anglo reports that second-half 2020 production returned to 95% of 2019 rates, benefiting from strong performances in copper in Chile and in iron ore in Brazil. Anglo American’s diamond business has also recovered smartly after collapsing last March. Let’s begin with a half position.