Copper Bets: Rio Tinto & Vale

10/20/2017 5:00 am EST

Focus: COMMODITIES

Bryan Perry

Editor, Phillips Publishing International

The stock market rally is running hot, buttressed by three main factors that have yet to be verified: tax reform, a new "dovish" Fed chair and the global reflation trade, says Bryan Perry, editor of Dividend Investing Weekly.

If there is in fact a global reflation trade in the works, then investors should pay close attention to how copper trades. Not only is copper the most widely utilized metal for industrial and commercial purposes, but it also is a major component in the big push towards electric cars throughout the world.

Even now, China has stated that it is considering phasing out cars with traditional combustion engines. This means a huge amount of copper is going to be in demand in the future, as most of the major auto manufacturers are starting to expand their electric vehicle product line.

As a byproduct of this transformational shift in the automobile industry, all of the electrical components are going to require copper. Over the longer term, that growing demand could cause supplies to shrink and prices to rise.


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The iPath Bloomberg Copper Subindex Total Return ETF (JJC) shows a massive reversal off a multi-year low following the Trump election win that now is stair-stepping higher.

For dividend investors, the two stocks that come to mind in the copper mining sector are London-based Rio Tinto (RIO) and Vale S.A. (VALE), based in Rio De Janeiro, Brazil.

Both stocks are widely traded as American Depository Receipts (ADRs) on the NYSE. Rio Tinto pays a dividend twice per year and currently yields 4.53%. Vale pays a dividend only once per year and its current yield stands at 2.79%.

If the global reflation trade is legit, then there is plenty of upside to be made in copper stocks like Rio Tinto and Vale. They trade at roughly 70% discounts to where they were priced in 2007.

So, the glide-path to steady gains looks very appealing if the economic data continues to pick up in the months ahead. The copper trade is one of the best time-tested ways to leverage a rebound in the global economy.

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