Has the stock price peaked? By The Motley Fool
© Reuters. Teck Resources (TSX:TECK.B): Has the stock price peaked?
Teck Resources (TSX:) (:TECK.B)(NYSE:TECK) generated strong gains for sophisticated investors who bought the stock near 2020 lows. Those who missed the rally are wondering if other bulls are in progress or if the rally is over.
Teck Resources Earnings Teck Resources announced record results for the first quarter of 2022, driven by strong coal, zinc and oil prices.
Adjusted EBITDA was $3.0 billion, more than triple the same period last year. The company uses the financial windfall to buy back shares and reduce its debt.
Teck is a major producer of metallurgical coal used to produce steel. Prices were already rising before the pandemic due to a trade dispute between China and Australia that shifted Chinese purchases to other suppliers, including Teck Resources. The surge in demand and supply constraints that have occurred over the past two years have pushed prices even higher. Large infrastructure investments by governments to spur an economic rebound, particularly in China, where the economy is still suffering due to ongoing COVID-19 lockdowns, could keep the price of steelmaking coal high.
Copper prices retreated after rising from US$2 to over US$4.75 earlier this year. As of this writing, copper is trading near US$4.17 per pound. That’s not too far off the 12-month low. Teck Resources is still making good profits at the current price, and copper bulls believe the market will remain strong for several years. Copper is a key element in the manufacture of electric vehicles, solar panels and wind turbines. Teck Resources is about to complete a new copper mine. Production is expected to begin by the end of this year.
Teck Resources also owns an interest in the Fort Hills oil sands facility. With oil close to US$120 a barrel, the investment is generating strong cash flow.
Risks? Soaring fuel prices, especially diesel, are eating away at some of the profit gains. Operating costs jumped 13% in the first quarter compared to the first quarter of 2021, with about half of the increase caused by soaring diesel fuel prices. This is not expected to change much in the short to medium term, as refineries are already operating near capacity and bringing new facilities online to manufacture gasoline, diesel fuel and jet fuel is taking a long time.
However, commodity prices could fall if rate hikes by the US Federal Reserve and other central banks trigger a severe economic slowdown. The fall in the price of copper, from near US$5 per pound at the March high to a recent low of around US$4.10, is a good warning to investors about how quickly markets commodities can change direction.
Is Teck Resources stock still a buy? Teck Resources is trading near $52 per share at the time of writing, compared to the 12-month high of $57.50. At just 6.9 times past 12-month earnings, the stock looks undervalued, and a push to $60 is certainly possible in the weeks or months ahead.
That being said, a quick look at Teck Resources’ stock chart over the past two decades suggests that buy-and-hold investors should be cautious. The rally is now over two years old and history suggests a big pullback is on the way. Commodity markets may be in a supercycle and going up longer this time around, but Teck Resources tends to go up the stairs and down the elevator, so you don’t want to get caught out. hold the stock when commodity prices reverse. Classes. Copper weakness over the past few months could be an early warning.
Traders might be able to make a decent profit on the expected near-term volatility, but I would look today for other long-term investment opportunities.
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The Motley Fool has no position in the stocks mentioned. Foolish contributor Andrew Walker has no position on the stocks mentioned.
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