Wall Street Continues Bullish on Resource Stocks Despite Recent Commodity Price Pullback
Outperforming mining and energy stocks are set for further gains as a constructive backdrop for commodity prices and demand is set to support earnings.
Basic resources and energy shares have outpaced the benchmark over the past three months, despite May’s drop in crude prices. Wall Street continues to be bullish on mining and energy stocks, believing that the shareholder payouts and a wide discount to the market support the case for the sector.
Cheap commodity stocks
Source: Bloomberg
JPMorgan’s Mislav Matejka said miners’ earnings-per-share will be supported by gains in industrial commodity prices by the second half of the year. He also likes the energy sector “which offers strong cash flow generation, attractive dividend yield, and is a geopolitical hedge.”
In addition, Morgan Stanley analysts led by Martijn Rats retain an attractive industry view as the structural outlook for energy companies over the coming years “continues to be in good shape.” They expect oil prices will trend higher this summer as seasonal demand strength creates a deficit in crude balances.
Massive shareholder payouts
The case for energy stocks is also underpinned by their massive shareholder payouts. Companies like $Shell (SHEL.US)$ and $BP PLC (BP.US)$ doubled down on making buybacks a priority this earnings season. European companies are expected to return over €600 billion ($652 billion) to shareholders this year, a decade-high, and energy firms are set to be one of the biggest contributors. Investors are also monitoring a wave of mergers and acquisitions in the sector.
Metals Outperform Miners
Source: Bloomberg
Another team of Morgan Stanley analysts including Alain Gabriel is also positive on metals and mining stocks in Europe, saying miners trade at a steep discount to the market relative to history. “A stable demand environment and continued focus on supply stress continues to underpin a solid commodity price environment,” they said.
Societe Generale strategists including Manish Kabra said equities rather than metals are now a more attractive way to play the boom in commodity prices. “The current rise in metal prices suggests an inflection in EPS momentum ahead for the mining sector,” he said.
$Southern Copper (SCCO.US)$ has seen a year-to-date (YTD) increase of over 30%, while $Valero Energy (VLO.US)$ , $Williams (WMB.US)$ , and $Marathon Petroleum (MPC.US)$ have all experienced gains of over 20% so far this year. $Freeport-McMoRan (FCX.US)$ has risen 17.52% since 2024.
Source: moomoo
Source: ZeroHedge, Bloomberg
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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