In this article, we discuss the 10 best metal stocks to invest in.
The metals industry in the past few months has been characterized by intense competition due to a dramatic increase in prices, slowing economic growth in China — the largest metals producer in the world by some margin — and the emergence of new faces at the market. Companies that work in the sector are now investing in new technology to keep pace with the changing dynamics, including endeavors to reduce carbon emissions and development of carbon-capture solutions.
According to the World Steel Association, steel demand, after seeing just 0.1% growth in 2020 due to the coronavirus pandemic, will climb above 4.5% this year to 1,855 Mt. In 2022, this figure is expected to climb to 1,896 Mt, representing a year-over-year growth of over 2.2%. One of the biggest drivers of the growth is the pent-up demand for steel. Since steel prices also dictate futures in the defense, transportation, energy, and construction industries, this will have a chain effect across the global economy.
Within the metals universe, China has emerged as an important player over the past few years. A real estate slowdown in the country and a government cap on steel production has affected pricing. Adverse weather and resurgence of virus cases have also played a part in the Chinese production of metals this year. In the coming months, market experts expect these trends to continue, stretching into the new year and beyond. Steel demand will likely reach pre-pandemic levels by next year.
Investors who want to ride this boom in the metals industry should follow the activity of institutional investors in the sector. Some of the top metal stocks to invest in according to hedge funds include Nucor Corporation (NYSE:NUE), Wheaton Precious Metals Corp. (NYSE:WPM), and Freeport-McMoRan Inc. (NYSE:FCX), among others discussed in detail below.
Our Methodology
Here is our list of the 10 best metal stocks to invest in. These were picked based on business fundamentals, analyst ratings, and hedge fund sentiment. The companies that stand to directly benefit from the increase in prices of metals like copper, iron, or alloys like steel were preferred for the list. Rare earth miners were also included.
The hedge fund sentiment around each stock was calculated using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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Best Metal Stocks To Invest In
10. Perpetua Resources Corp. (NASDAQ:PPTA)
Number of Hedge Fund Holders: 3
Perpetua Resources Corp. (NASDAQ:PPTA) is a mining company based in Idaho. The primary interest of the firm is in gold deposits but it also engages in the mining of other metals. B Riley analyst Lucas Pipes recently initiated coverage of the stock with a Buy rating and a price target of $22, touting the potential of the Stibnite Gold Project, presently being developed by Perpetua. The analyst termed the initiative as the “most compelling” gold project in the industry.
Perpetua Resources Corp. (NASDAQ:PPTA) stock has recently been affected by the news that John Paulson, a billionaire and one of the shareholders in the firm, is getting divorced, fueling uncertainty around his top equity assets.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Paulson & Co is a leading shareholder in Perpetua Resources Corp. (NASDAQ:PPTA) with 20 million shares worth more than $152 million.
At the end of the second quarter of 2021, 3 hedge funds in the database of Insider Monkey held stakes worth $184 million in Perpetua Resources Corp. (NASDAQ:PPTA), the same as in the previous quarter worth $167 million.
Just like Nucor Corporation (NYSE:NUE), Wheaton Precious Metals Corp. (NYSE:WPM), and Freeport-McMoRan Inc. (NYSE:FCX), Perpetua Resources Corp. (NASDAQ:PPTA) is one of the stocks on the radar of institutional investors.
9. POSCO (NYSE:PKX)
Number of Hedge Fund Holders: 12
POSCO (NYSE:PKX) is a Korean firm that markets steel products. It is one of the top holdings in the portfolio of legendary value investor Charlie Munger. The company has recently made an offer to purchase Senex Energy, an Australian oil and gas firm with a market capitalization of more than $611 million. In early September, POSCO had revealed that it signed a multi-year agreement to supply Array Technologies, a firm that markets solar tracking systems.
As POSCO (NYSE:PKX) prepares to release quarterly results, it is worth mentioning that back in July, the firm had forecast that the operating profit in the second quarter would skyrocket to $1.9 billion, up 1,300% year-on-year, amid high demand and prices for steel products.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Pzena Investment Management is a leading shareholder in POSCO (NYSE:PKX) with 992,644 shares worth more than $76 million.
At the end of the second quarter of 2021, 12 hedge funds in the database of Insider Monkey held stakes worth $161 million in POSCO (NYSE:PKX), the same as in the previous quarter worth $157 million.
8. Encore Wire Corporation (NASDAQ:WIRE)
Number of Hedge Fund Holders: 20
DA Davidson analyst Brent Thielman recently raised the price target on Encore Wire Corporation (NASDAQ:WIRE) stock to $150 from $115 and kept a Buy rating, underlining the potential the stock offered as a hedge against inflation and amid high demand for electrical components. The company, which sells electrical components and equipment made of different metals, recently beat market estimates on earnings per share and revenue in the third quarter by $5.59 and $128 million respectively.
Daniel Jones, the CEO of Encore Wire Corporation (NASDAQ:WIRE), said that the “integrated” business model of the firm had helped it post strong results and that he remained committed to long-term growth while addressing near-term challenges.
At the end of the second quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $77 million in Encore Wire Corporation (NASDAQ:WIRE), up from 19 in the previous quarter worth $81 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Royce & Associates is a leading shareholder in Encore Wire Corporation (NASDAQ:WIRE) with 413,779 shares worth more than $31 million.
7. Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 21
Rio Tinto Group (NYSE:RIO) is a United Kingdom-based diversified metals and mining company. It has interests in gold, iron, and other metals. The company has benefited from the massive increase in iron prices this year, although it was also forced to cut iron shipment guidance for the fiscal year amid labor shortages. The company has recently also received approval for a copper mine in Arizona from both the government and the courts.
In late October, Rio Tinto Group (NYSE:RIO) announced that it would invest at least $7.5 billion into different projects as part of a larger plan to cut the carbon emissions of the firm in half by 2030, way ahead of earlier targets it had committed to.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Rio Tinto Group (NYSE:RIO) with 12.9 million shares worth more than $1 billion.
At the end of the second quarter of 2021, 22 hedge funds in the database of Insider Monkey held stakes worth $121 million in Rio Tinto Group (NYSE:RIO), up from 20 in the previous quarter worth $134 million.
6. Commercial Metals Company (NYSE:CMC)
Number of Hedge Fund Holders: 22
Commercial Metals Company (NYSE:CMC) makes and sells steel and metal products. It is headquartered in Texas. It recently declared a quarterly dividend of $0.14 per share, an increase of more than 16% from the previous dividend of $0.12 per share. The forward yield was 1.74%. The firm stands to benefit as the US President prepares to sign a multi-trillion dollar bill into law that will require a lot of steel and metal to rebuild infrastructure across the US.
Goldman Sachs analyst Emily Chieng recently upgraded Commercial Metals Company (NYSE:CMC) stock to Neutral from Sell and raised the price target to $33 from $31, highlighting valuation multiples as a key reason behind the upgrade.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm DE Shaw is a leading shareholder in Commercial Metals Company (NYSE:CMC) with 1.2 million shares worth more than $37 million.
At the end of the second quarter of 2021, 21 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Commercial Metals Company (NYSE:CMC).
In addition to Nucor Corporation (NYSE:NUE), Wheaton Precious Metals Corp. (NYSE:WPM), and Freeport-McMoRan Inc. (NYSE:FCX), Commercial Metals Company (NYSE:CMC) is one of the stocks that elite investors are buying.
5. Steel Dynamics, Inc. (NASDAQ:STLD)
Number of Hedge Fund Holders: 26
Steel Dynamics, Inc. (NASDAQ:STLD) operates as a steel producer. The company stands to benefit from a recent agreement between the United States and the European Union under which the two parties will ease steel and aluminum tariffs to encourage exports. In earnings results for the third quarter, posted on October 18, the firm beat market estimates on earnings per share by $0.11. The revenue over the period was $5 billion, up 118% year-on-year.
Mark Millett, the CEO of Steel Dynamics, Inc. (NASDAQ:STLD), recently told the media that he expected steel prices to ease at the beginning of next year. He also underlined how despite building new plants, the US steel market would still need imports to cover domestic demand.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Steel Dynamics, Inc. (NASDAQ:STLD) with 2.4 million shares worth more than $148 million.
4. Wheaton Precious Metals Corp. (NYSE:WPM)
Number of Hedge Fund Holders: 26
Wheaton Precious Metals Corp. (NYSE:WPM) is a Canadian mining company with interests in gold, silver, palladium, and cobalt, among other metals. It has an impressive dividend history and recently declared a quarterly dividend of $0.15 per share, in line with previous. The forward yield was 1.49%. The stock has benefited from the increase in gold prices amid inflation concerns and the spread of the Delta variant of the coronavirus.
KeyBanc analyst Adam Josephson recently initiated coverage of Wheaton Precious Metals Corp. (NYSE:WPM) stock with an Overweight rating and a price target of $47, highlighting high margins, leverage to commodity prices, and no direct inflation risk in a bullish investor note on the firm.
At the end of the second quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $471 million in Wheaton Precious Metals Corp. (NYSE:WPM), down from 28 in the previous quarter worth $439 million.
In its Q2 2020 investor letter, First Eagle Investment Management, an asset management firm, highlighted a few stocks and Wheaton Precious Metals Corp. (NYSE:WPM) was one of them. Here is what the fund said:
“The strength in the price of gold was generally supportive of gold-related equities whose performance historically has been leveraged to the gold price. One such example is Wheaton Precious Metals, a Canadian streaming company that maintains, in our view, a high-quality, low-cost portfolio of precious metal purchase agreements that is well diversified across mining partners, geographies and metal types. Despite pandemic-related suspensions of six of its mining assets, Wheaton posted a 50% year-over-year increase in operating cash flow for the first quarter, which allowed the company to reduce its net debt while raising its quarterly dividend payment.”
3. MP Materials Corp. (NYSE:MP)
Number of Hedge Fund Holders: 20
MP Materials Corp. (NYSE: MP) features on our list of top metal stocks because the company is one of the largest players in the rare earths mining business. The rare earth metals are fast becoming a very expensive commodity and are used in a variety of products, including vehicles, airplanes, and mobile phones, among others. MP recently beat market estimates on earnings per share and revenue for the third quarter.
On October 26, investment advisory JPMorgan maintained an Overweight rating on MP Materials Corp. (NYSE:MP) stock with a price target of $45, appreciating the “solid” earnings beat of the firm in the third quarter and noting that rare earth prices could climb higher in the coming months.
At the end of the second quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $2.5 billion in MP Materials Corp. (NYSE:MP).
2. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 32
Nucor Corporation (NYSE:NUE) makes and sells steel products. The company has recently announced a slew of initiatives aimed at expanding business that include building a new sheet plant for $2.7 billion, the purchase of an Indiana coil processing facility, and the plan to build a $100 million melt shop in western US.
Nucor Corporation (NYSE:NUE) recently posted earnings for the third quarter, reporting earnings per share of $7.28 and a revenue of $10.3 billion, up more than 109% compared to the revenue over the same period last year.
At the end of the second quarter of 2021, 32 hedge funds in the database of Insider Monkey held stakes worth $196 million in Nucor Corporation (NYSE:NUE), up from 25 in the preceding quarter worth $191 million.
In its Q1 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and Nucor Corporation (NYSE:NUE) was one of them. Here is what the fund said:
“This quarter we are highlighting Nucor (NUE) as a relative yield example within the Materials sector. NUE is a leading manufacturer of steel and steel products. It is the largest steelmaker in the U.S. based on production volume with a vertically integrated business model. The company has a low fixed-cost position due to its use of electric arc furnaces, which are cleaner, less labor and energy-intensive than blast furnaces, and this results in low total costs per unit of steel produced. Our view is that a low cost position is an important attribute in a commodity business. NUE’s historical financial record supports this view as it has been profitable every year except for one over the past fifty years, unlike many steel producing peers. In addition, the company has a diverse product and mill portfolio that takes market share over time. We believe its scale, low fixed-cost position, consistent record of profitability and diverse mill portfolio result in a sustainable competitive advantage versus peers.
Our thesis on NUE is that it should benefit from higher steel prices as the U.S. economy recovers from the downturn caused by the Covid-19 pandemic. The company may also be a beneficiary of on-shoring, where manufacturing returns to the United States. These two dynamics should drive growth this year, and if the United States Congress passes new infrastructure legislation, that will provide another avenue for growth longer-term.
Importantly, NUE has a strong balance sheet and flexible capital spending model that can quickly adjust to changing economic
conditions. If economic growth slows, NUE can quickly reduce its cost structure, something it has done successfully in prior cyclical downturns. The company has low financial leverage as its net debt/adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was only 0.9x at the end of last year, and it consistently generates positive free cash flow. These favorable characteristics differentiate NUE from other steel producers and help the company gain market share through disciplined capital allocation.
The fund purchased NUE at $56 in January, 2021, after it reached a low valuation with an attractive dividend yield and relative dividend yield versus the S&P 500. At the time or purchase, the stock yielded 3.3% and had a relative dividend yield of more than 2x the S&P 500, which was the high end of its historical range as shown in the bottom pane in the graph. The company is also a Dividend Aristocrat that has raised its dividend annually for 48 years. We expect continued dividend increases going forward.
Risks to the thesis include a prolonged economic downturn, lower steel prices and increasing steel import volumes that could hurt NUE financial performance. We believe these risks are manageable as economic growth is expected to be well above average this year. Specifically, Goldman Sachs is forecasting U.S. gross domestic product (GDP) growth of +8% in 2021, which would be the fastest pace of growth since 1950. Strong growth is likely to result in higher manufacturing activity, which we believe would be supportive of higher steel prices and limit risks to the thesis.”
1. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 76
Freeport-McMoRan Inc. (NYSE:FCX) is one of the biggest metal mining companies in the world with solid fundamentals and strong growth outlook. It features at the top of our list of best metal stocks. The company recently beat market expectations on earnings per share by $0.09. The stock has returned more than 93% to investors in the past twelve months. Argus recently raised the price target on the stock to $45 from $40 and kept a Buy rating.
A surge in prices of metals like copper and iron has helped lift Freeport-McMoRan Inc. (NYSE:FCX) to new highs this year. Inflation fears are also helping mining stocks, which are traditionally seen as a great hedge against portfolio risk.
At the end of the second quarter of 2021, 76 hedge funds in the database of Insider Monkey held stakes worth $3.8 billion in Freeport-McMoRan Inc. (NYSE: FCX), up from 68 in the preceding quarter worth $3.2 billion.
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Disclosure. None. 10 Best Metal Stocks To Invest In is originally published on Insider Monkey.
