Goldman Sachs: These stocks could pop on a coming China boom

Published Fri, Jan 15 20213:20 AM ESTUpdated Mon, Jan 18 202112:26 AM EST

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Investment bank Goldman Sachs picked the mining and metal stocks that it predicts will benefit from a commodity "supercycle" like the one seen more than a decade ago. The last supercycle happened in the mid-2000s during the house price bubble that resulted in a credit crisis. At that time, the price of some metals surged — in a sector that is notoriously hard to call Goldman said that while the metals and mining sector is up more than 100% from the lows seen in March 2020, to a high not seen since 2011, there is still room to grow. This, it said in a note published Wednesday, is due to an increase in Chinese manufacturing, the distribution of coronavirus vaccines and a shortage of certain metals. These are Goldman's top supercycle stock picks: British miner Anglo American is upgraded to a "buy" from "neutral," with Goldman expecting a sector-beating earnings increase. The bank added that Anglo's platinum group metals division is currently underpriced, contributing to an expected 30% upside for the business as a whole. Goldman keeps to its "buy" rating for steel company ArcelorMittal , expecting price increases driven in part by production shutdowns due to Covid, which the bank does not expect to be resolved until the second half of the year. It also noted the higher cost of raw materials and forecast fourth-quarter earnings that would beat market consensus. The company's results are published on Feb. 11. The bank also sticks to its "buy" rating for mining company BHP , preferring it to competitor Rio Tinto for its diverse business that includes copper, oil and metallurgical coal. It remains "neutral" on Rio Tinto but expects a change in business strategy with new CEO Jakob Stausholm taking on his role at the start of this month. Goldman said Canadian copper miner Lundin Mining was undervalued compared to its peers and maintained its "buy" rating. Antofagasta , which operates mines in Chile, is a "neutral" rating for Goldman. While it is a "high-quality business," the bank expects it to increase capital expenditure. Swedish miner Boliden remains a "sell" for Goldman, due to falling production, reduced prices for zinc, possibly higher capital expenditure and a "stretched" valuation. Demand for metals is growing, partly due to a predicted increase in Chinese manufacturing, with Goldman expecting year-over-year demand from the country to increase by 2.5% for copper and 3.3% for aluminum. It expects Chinese steel demand to go up 3%. China's metal consumption index is at its highest level since 2011 and Goldman said manufacturing should rebound this year. On Monday, China's National Bureau of Statistics said the economy grew 2.3% in 2020 , making it the only major economy to record growth as the world grappled with the coronavirus pandemic. Goldman has previously forecast China to be the only large economy to grow its GDP in 2021, at an estimated 7.5%, per a note published in November. Other drivers for the growth in metals include a shortage in supply of copper and iron ore. "We find copper the most interesting commodity, given its demand landscape — (due to) the increased focus on renewables — and constrained supply," Goldman's analysts said. "We believe that the sector will re-rate in an inflationary environment, similar to the re-rating seen in the supercycle of the 2000s," its analysts added, meaning that inflation is set to increase investors' interest in metals.

Workers in an automobile factory in Beijing, China.

Chalffy | Getty Images

Investment bank Goldman Sachs picked the mining and metal stocks that it predicts will benefit from a commodity "supercycle" like the one seen more than a decade ago.

The last supercycle happened in the mid-2000s during the house price bubble that resulted in a credit crisis. At that time, the price of some metals surged — in a sector that is notoriously hard to call

Goldman said that while the metals and mining sector is up more than 100% from the lows seen in March 2020, to a high not seen since 2011, there is still room to grow. This, it said in a note published Wednesday, is due to an increase in Chinese manufacturing, the distribution of coronavirus vaccines and a shortage of certain metals.

These are Goldman's top supercycle stock picks: