Thirteen of the top 25 mining company stocks are trading more than 11% below analysts' mean target prices, implying a strong potential upside for investors entering the space, according to an S&P Global Market Intelligence analysis.
Of the top 25 mining companies by market capitalization, only seven were trading at prices above analysts' mean target prices as of June 18, while 18 companies had stock prices trading below analysts' expectations.
Scott Schier, an analyst with Clarksons Platou Securities, wrote in a June 17 note that miners have underperformed the rest of the market, in part because economic lockdowns in response to the COVID-19 pandemic have weighed on commodity prices. As restrictions ease, Schier expects fiscal and monetary stimulus policies around the world to lift demand for mined materials.
"[W]e argue that metals and mining names should rally with the implementation of fiscal stimulus programs and increased downstream demand," Schier wrote. "Combined with our belief that the [capital expenditure] cuts (both growth and sustaining) and mine idlings that we have seen this year will tighten supply for key commodities in the coming years, we argue that now is the time to add exposure to certain names in our metals and mining coverage universe."
Gold companies Kirkland Lake Gold Ltd., Newmont Corp. and Shandong Gold Mining Co. Ltd. top the list of mining companies ranked by highest implied upside to analysts' targets. Kirkland Lake was trading 36.7% below target, and the company generated a negative 1.1% one-year total return. Its stock had a buy strength of 78.6%, a measure determined by dividing the number of buy and overweight recommendations by the total number of recommendations.
Other mining companies with double-digit implied upside between their current stock price and analyst expectations are Glencore PLC, Zijin Mining Group Co. Ltd., PJSC Norilsk Nickel Co., Vale SA, PAO Severstal, Freeport-McMoRan Inc., Barrick Gold Corp., Anglo American PLC, Agnico Eagle Mines Ltd. and Wheaton Precious Metals Corp.
Of the top 25 companies, Fortescue Metals Group Ltd. had the largest potential downside by far, with its stock price trading 21.4% below analysts' targets. Other companies reporting a negative upside to analysts' price targets were Saudi Arabian Mining Co., Southern Copper Corp., Antofagasta PLC, Rio Tinto, BHP Group and Anglo American Platinum Ltd.