In this article, we will look at 5 stocks at risk from a potential real estate crash in China. If you want to explore similar stocks and read more background on the Chinese housing market crisis, you should also check out China Real Estate Market Crash: 10 Stocks at Risk.
5. Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 26
Rio Tinto Group (NYSE:RIO) engages in exploring, mining, and processing mineral resources worldwide. The company offers aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and lithium. Rio Tinto Group (NYSE:RIO) could get hurt by slowing demand in China and as of August 11, the stock has reflected that, dropping by 30.31% over the past 12 months.
On July 27, Rio Tinto Group (NYSE:RIO) reported its earnings results for the six months that ended on June 30. The company reported EPS of $5.327 and revenue of $29.8 billion, the latter down 10% year-over-year. The company’s consolidated sales revenue in China fell to 52.1% in the first-half of 2022, down from 59.9% in the comparable period last year.
On July 28, UBS analyst Myles Allsop slashed his price target on Rio Tinto Group (NYSE:RIO) to 4,300 GBP from 4,400 GBP and reiterated a ‘Neutral’ rating on the shares.
At the close of Q1 2022, 26 hedge funds were long Rio Tinto Group (NYSE:RIO), with stakes worth $2.54 billion. That was up from 22 positions in the previous quarter with stakes worth $1.83 billion. As of June 30, Fisher Asset Management owns roughly 14.8 million shares of Rio Tinto Group (NYSE:RIO) and is the largest shareholder in the company.
4. Vale S.A. (NYSE:VALE)
Number of Hedge Fund Holders: 27
Vale S.A. (NYSE:VALE) produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking in Brazil and internationally. The company operates through its Ferrous Minerals and Base Metals segments. Vale S.A. (NYSE:VALE) is exposed to China’s construction sector and is a major supplier of iron ore to the country. If China undergoes a housing crash, Vale S.A. (NYSE:VALE) is likely to suffer major pullbacks. As of August 11, Vale S.A. (NYSE:VALE) has lost 32.38% over the past year.
On July 13, Exane BNP Paribas analyst Sylvain Brunet downgraded Vale S.A. (NYSE:VALE) to ‘Neutral’ from ‘Outperform’ and reiterated his $16 price target on the stock. Vale reported fiscal Q2 EPS of $0.94 on July 28, beating estimates by $0.14. The company’s revenue for the quarter dropped 33.09% year-over-year to come in at $11.2 billion, missing estimates by over $428 million. The company also slashed its full-year iron ore production guidance, reporting that it now expects iron ore output to range between 310 million and 320 million metric tons, down from its prior guidance of between 320 million and 335 million metric tons.
At the end of the first quarter of 2022, 27 hedge funds were bullish on Vale S.A. (NYSE:VALE), holding collective stakes in the company worth $2.37 billion. Those figures are improvements over the 25 funds with stakes worth $1.71 billion a quarter earlier. As of June 30, Fisher Asset Management owns nearly 22.2 million shares of Vale S.A. (NYSE:VALE) and is the top shareholder in the company with a $325 million position.
Grantham Mayo Van Otterloo & Co. LLC, an asset management firm, mentioned Vale S.A. (NYSE:VALE) in its first-quarter 2022 investor letter, here is what the firm had to say:
“Let’s look at Vale (NYSE:VALE), the world’s largest iron ore producer, as a case study for how shareholders can be rewarded. Vale’s stock price is about where it was at the beginning of last year. Despite the market’s lack of enthusiasm, the company generated about $20 billion of free cash flow last year. Not bad for a company with a market cap of a little over $100 billion and no substantive debt as of the end of March. 4 What did the company do with all that cash? Last year, Vale paid out about $9 billion in regularly scheduled dividends and distributed another $10 billion between extra dividends and share repurchases. Combined with dividends distributed in the first quarter of this year and a recently announced share repurchase, Vale has returned or announced the return of over $33 billion since the beginning of last year, almost a 32% yield relative to the market cap of the company. Not a bad way to win.”
3. KE Holdings Inc (NYSE:BEKE)
Number of Hedge Fund Holders: 34
KE Holdings, Inc. (NYSE:BEKE) is another company that’s vulnerable to a mortgage crisis in China, as the company operates an integrated online and offline platform for housing transactions and services in the People’s Republic of China. KE Holdings operates in three segments: Existing Home Transaction Services, New Home Transaction Services, and Emerging and Other Services. It facilitates various housing transactions ranging from existing and new home sales, home rentals, home renovation and furnishing, and other services. As of August 11, BEKE shares have lost 23.63% year-to-date.
At the end of Q1 2022, 34 hedge funds held stakes in KE Holdings Inc (NYSE:BEKE) valued at $883 million, down considerably value-wise from the 34 funds that held positions worth $2.3 billion a quarter earlier. In the second quarter of 2022, Bridgewater Associates reduced its stake in KE Holdings Inc. (NYSE:BEKE) by 6%, owning a $55.4 million position in the company. As of June 30, Ray Dalio’s hedge fund owns 3.08 million shares of KE Holdings Inc. (NYSE:BEKE) and is the largest shareholder in the company.
2. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 54
Caterpillar Inc. (NYSE:CAT) is a leading global construction and mining equipment provider. On August 2, the company announced that China’s mortgage crisis has caused a huge drop in demand for its excavators. In the second quarter of 2022, Caterpillar Inc. (NYSE:CAT) reported that its sales in Asia fell by 17% year-over-year. The company noted that China accounts for 10% of its overall revenue and said that the country’s mortgage crisis is posing a headwind for Caterpillar Inc. (NYSE:CAT) and its peers.
On August 2, Caterpillar Inc. (NYSE:CAT) reported its financial results for the company’s fiscal second quarter of 2022. Caterpillar reported earnings per share of $3.18, beating EPS estimates by $0.16. The company’s revenue came in at $14.25 billion and missed Wall Street estimates by $136 million. As of August 11, Caterpillar Inc. (NYSE:CAT)’s stock has lost 12% year-to-date.
On August 3, Morgan Stanley analyst Dillon Cumming noted that Caterpillar Inc.’s (NYSE:CAT) revenue misses in its construction and resource segment and declining retail sales could lead to peak cycle concerns. The analyst reiterated an ‘Underweight’ rating and $142 price target on Caterpillar Inc. (NYSE:CAT) shares.
At the end of Q1 2022, 54 hedge funds were long Caterpillar Inc. (NYSE:CAT), holding stakes worth $4.01 billion in the company. At the end of 2021, 53 funds held collective CAT stakes worth $4.99 billion. Fisher Asset Management is the most bullish hedge fund on Caterpillar Inc. (NYSE:CAT) among the funds that have revealed their Q2 holdings thus far, owning a $1.34 billion stake in the company.
Here is what Diamond Hill Capital had to say about Caterpillar Inc. (NYSE:CAT) in its “Diamond Hill Large Cap Concentrated Fund” first-quarter 2022 investor letter:
“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
1. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 68
Freeport-McMoRan Inc. (NYSE:FCX) is a major producer of copper and China consumes roughly 50% of the world’s produced copper. On August 2, Reuters reported that China imported 0.37 million tonnes of refined copper in June and imported roughly 1.87 million tonnes in the first-half of 2022. However, if the housing market in China crashes, so does the demand for copper, and Freeport-McMoran Inc. (NYSE:FCX) could suffer a drastic drop in demand as a result. As of August 11, FCX has lost 23.65% year-to-date.
On July 21, Freeport-McMoran Inc. (NYSE:FCX) reported its financial results for the company’s fiscal Q2 of 2022. It reported earnings per share of $0.58, which missed Wall Street estimates by $0.07. The company’s revenue for the quarter amounted to $5.42 billion, which was down 5.78% year-over-year, and also widely missed expectations, falling over $724 million short of estimates. On July 22, Deutsche Bank analyst Abhi Agarwal lowered his price target on Freeport-McMoRan Inc. (NYSE:FCX) to $35 from $37 and reiterated a ‘Hold’ rating on the shares.
At the end of Q1 2022, 68 hedge funds held $4.1 billion worth of stakes in Freeport-McMoran Inc. (NYSE:FCX), up from 66 positions in the previous quarter worth $3.77 billion. Fisher Asset Management owns over 52 million shares of Freeport-McMoran Inc. (NYSE:FCX) worth $1.52 billion as of June 30.
Here is what Carillon Tower Advisers, an investment management firm, had to say about Freeport-McMoran Inc. (NYSE:FCX) in its “Carillon Scout Mid Cap Fund” first-quarter 2022 investor letter:
“Supply chains eased for some goods, but remained challenged for many commodities including energy, agriculture, and fertilizer due to war and general scarcity, and also in many consumer products as semiconductors remained in short supply. Copper and gold producer Freeport- McMoRan (NYSE:FCX) rose as copper prices remained strong due to supply shortages and growing use in renewable energy systems and electric vehicles.”
You can also take a look at 11 Best Housing Stocks To Buy In 2022 and Housing Market Predictions for 2022 and 10 Stocks to Watch.
