Reasons to Hold Teck (TECK) Stock in Your Portfolio for Now
Teck Resources Ltd TECK is poised to gain from its cost-reduction initiatives, solid project pipelines and innovation-driven efficiency program. However, weak commodity markets and a global economy slowdown amid the coronavirus pandemic are concerns.
Teck currently carries a Zacks Rank #3 (Hold). It has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors.
Price Performance
Teck’s shares have appreciated 42% over the past three months compared with the industry’s growth of 30.1%.
Underpriced
Looking at Teck’s price-to-earnings ratio, its shares are underpriced at the current level, which seems attractive for investors. The company has a trailing P/E ratio of 7.0, which is lower than the industry average of 51.9.
Superior Return on Assets
Teck currently has a Return on Assets (ROA) of 2.9%, higher than the industry’s 1.5%. An above-average ROA denotes that the company is generating earnings by effectively managing its assets.
Growth Drivers in Place
Teck Resources is poised to gain from the Neptune Bulk Terminals facility upgrades and construction of the Quebrada Blanca Phase 2 (QB2) copper project. The Neptune Bulk Terminals project will strengthen the steelmaking coal-supply chain and meet the long-term requirements of customers for consistent, high-quality products. The QB2 copper project will transform the company’s copper business, making it a major global copper producer. Though it has temporarily suspended construction activities in the QB2 project amid coronavirus fears, there are significant opportunities to increase production and mine life in future phases. Furthermore, expansion of the Elkview Operations plant will boost the overall steelmaking coal-production capacity in the near term.
The company has implemented a cost-reduction program to lower operating costs, as well as deferred some of the planned capital projects in a bid to counter the uncertain economic conditions. This will bolster the company’s margin in the current year. Moreover, Teck Resources continues to implement its innovation-driven efficiency program RACE21 that is expected to improve productivity across the business.
Copper prices are gaining momentum on strong demand in China and supply concerns over Chilean mines. This demand-supply imbalance will drive copper prices north, which bodes well for the company.
Few Headwinds to Counter
Teck has suspended the annual guidance for the current year, given the pandemic’s uncertain impact on the company’s results. Further, disruptions at mine sites due to the pandemic might have hurt mine production growth in the second quarter. Sales volume at the Steelmaking Coal segment during the June-end quarter is likely to have declined on concerns over steelmaking coal demand and supply. Given the weak demand due to the coronavirus outbreak, and the high inventory levels on the rail and port constraints, the company plans to shut down Neptune Bulk Terminals, in order to progress the facility upgrade, which might mar quarterly coal production.
Bottom Line
Investors might want to hold on to the stock, at present, as it has ample prospects for outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the basic materials space are Sandstorm Gold Ltd SAND, Harmony Gold Mining Company Limited HMY and AngloGold Ashanti Limited AU, all carrying a Zacks Rank #2 currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sandstorm Gold has an expected earnings growth rate of 33.3% for 2020. The company’s shares have surged 71.8% in the past year.
Harmony Gold has a projected earnings growth rate of 28.6% for fiscal 2020. Its shares have soared 87.7% in a year’s time.
AngloGold has an estimated earnings growth rate of 109.9% for the ongoing year. The company’s shares have appreciated 71.3% in the past year.
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