Goldman Sachs calls metals and mining 'attractive,' names top stocks

Published Tue, Mar 20 20182:54 PM EDT

It's a great time to be invested in metals and mining, with top names in the industry expected to outperform the market with attractive returns, Goldman Sachs analysts wrote Tuesday. "Two years after commodity prices started returning to life in the spring of 2016, many long-standing themes for the North America metals and mining industry look familiar on the surface but are in fact richly different on a closer view," explained Goldman analyst Matthew Korn. "Our coverage view on the North America metals and mining sector is Attractive, with the stocks supported by a diverse combination of good fundamentals," the analyst added. "Commodity prices are high [and] the supply side for metals and bulks looks more rational than it has been in years." Korn told clients that while the global steel industry remains China-dominated, mills are expanding in the U.S. while the Chinese shutter "old, outdated" capacity. Aluminum, too, looks attractive, driven by technology and transportation demand. A bank famous for investments in commodities, Goldman Sachs's equity research team initiated coverage on a slew of major names, complete with company-by-company synopses and price targets. 1) Freeport-McMoRan ( FCX ) Goldman's Korn sees more than 27 percent upside for shares of the one of the world's largest copper and gold producers. The bullish forecast comes as the company resolves a dispute with the Indonesian government, which has jeopardized Freeport's 30-year contract by seeking to draw even more revenue out of its mining industry through a shake-up of regulations over foreign ownership and ore processing. "With the Goldman Sachs commodities team forecasting copper and gold prices substantially higher than the futures curve, we see FCX as a favored way to gain exposure to one of our favorite commodity stories." "It's actually been encouraging to see the company start to re-emphasize the growth potential of its properties outside of Indonesia, which we see as a function of: stable copper prices above $3 per pound and greater confidence that the Indonesian situation should be better-than-expected." 2) Nucor ( NUE ) The bank sees shares rallying up to $78 in the next 12 months, implying nearly 20 percent upside. Nucor is the largest U.S. steelmaker and is the middle of an "aggressive" investment program to drive volume and margin expansion, Korn wrote. "The company is managed by some of the industry's most experienced operators, and the results have been impressive– since 2010 Nucor has expanded its EBITDA margin by 420 basis points, generated steady free cash flow, and allocated capital both organically and via M & A according to its focus on profitable growth." "Our key investment proposition is much more basic: we believe that NUE can continue to exploit its strong balance sheet and market position to gain share and deliver earnings growth to at least the level currently expected by the Street." 3) Constellium NV ( CSTM ) The aluminum processor's stock is set to pop 35 percent over the next year as volume and margin expansion ramp with auto body sheet capabilities, Korn said. "We believe these next two years should be eventful for Constellium, as the initiatives taken by the refreshed management team should move forward, EBITDA should improve, and the company further demonstrates a path toward positive cash flow. Our price target presumes a modest multiple re-rating for the stock as the company shows success."

A dump truck unloads ore into a crusher in the underground area at Freeport McMoRan's Grasberg copper and gold mining complex in Papua province, Indonesia.

Dadang Tri | Bloomberg | Getty Images

It's a great time to be invested in metals and mining, with top names in the industry expected to outperform the market with attractive returns, Goldman Sachs analysts wrote Tuesday.

"Two years after commodity prices started returning to life in the spring of 2016, many long-standing themes for the North America metals and mining industry look familiar on the surface but are in fact richly different on a closer view," explained Goldman analyst Matthew Korn.

"Our coverage view on the North America metals and mining sector is Attractive, with the stocks supported by a diverse combination of good fundamentals," the analyst added. "Commodity prices are high [and] the supply side for metals and bulks looks more rational than it has been in years."

Korn told clients that while the global steel industry remains China-dominated, mills are expanding in the U.S. while the Chinese shutter "old, outdated" capacity. Aluminum, too, looks attractive, driven by technology and transportation demand.

A bank famous for investments in commodities, Goldman Sachs's equity research team initiated coverage on a slew of major names, complete with company-by-company synopses and price targets.