In this article, we discuss the 5 best metal stocks to invest in. If you want to read our detailed analysis of these stocks, go directly to the 10 Best Metal Stocks To Invest In.
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.
You can also take a peek at 10 Best Medical Stocks Under $10 and 10 Best Cash App Stocks to Invest In.
