For Immediate Release
Chicago, IL – March 19, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Franco-Nevada Corp. FNV, Kirkland Lake Gold Ltd. KL, Newmont Corporation NEM, Daqo New Energy Corp. DQ and Gerdau S.A. GGB.
Here are highlights from Wednesday’s Analyst Blog:
5 Basic Materials Stocks to Buy Despite the Coronavirus Rout
The coronavirus outbreak is packing a punch to the Basic Materials sector. The lethal respiratory virus has taken a heavy toll on most commodities due to a slowdown in demand in China –— the world’s biggest consumer of commodities.
Coronavirus Triggers Bloodbath in Commodities
The Basic Materials sector has had a rough ride so far this year. The Zacks Basic Materials sector has tumbled 38.1% year to date, compared with the S&P 500’s decline of 25.8%.
Commodities have been among the worst hit since the virus started spreading across the globe. The outbreak, which originated in the city of Wuhan in China’s Hubei province, has triggered a selloff in most commodities. This has cast a pall over several industries in the Basic Materials space.
The outbreak has so far claimed more than 8,000 lives and infected more than 200,000 people globally. It has been spreading like wildfire across Italy, Iran, Spain and Germany lately, forcing entire societies to shut down.
Fears that a possible hard landing of China’s economy amid the pandemic would kill the country’s appetite for raw materials have cast a dark shadow over the commodity markets.
Major industries in the Basic Materials space such as chemicals and steel have been walloped by the virus. The contagion has sent shares of companies across these industries crashing amid rising concerns over a demand slowdown in China.
Coronavirus has dealt a heavy blow to the steel industry, which faced choppy waters in 2019. China’s economy is already feeling the pinch of the outbreak. Steel demand in China, the world’s top consumer, is expected to remain weak over the near term as the coronavirus has led to a slowdown in activities across major steel end-use markets such as construction and automotive. Moreover, the current weak economic and demand situations in China are expected to exert pressure on steel prices over the short haul.
Companies in the chemical space are also facing demand weakness stemming from the coronavirus. Chemical makers are likely to witness a short-term drop in demand in China, a top consumer of chemicals, as coronavirus-induced shutdowns have hurt industrial activities in the country. The supply disruption in China is also expected to impact the availability of raw materials for the chemical industry, at least through the first half of 2020, leading to a spike in cost of inputs.
Among metals, gold has been the bright spot as mounting fears over coronavirus made it the most attractive safe-haven asset. The virus crisis and a sharp decline in oil prices triggered by Saudi Arabia’s price war with Russia sent prices of the yellow metal above $1,700 an ounce on Mar 8, levels last seen in December 2012.
However, the bullion has lost some ground since then with prices tracking downward on traders’ rush to liquidate their positions to convert precious metals into cash amid intensifying coronavirus fears. In fact, gold prices fell 9% for the week ending Mar 13, the steepest weekly loss since September 2011, amid heavy selling pressure.
While gold prices opened higher on Monday following the U.S. Federal Reserve’s emergency decision to slash interest rate to near zero to help the U.S. economy withstand the damaging impact of coronavirus, prices slumped in late trading to settle below $1,500 an ounce (lowest level since December 2019) as investors continue liquidations in a state of panic.
Silver also slouched to below $12 an ounce and eventually settled at the lowest levels in more than a decade. Prices of the white metal dropped as much as 19% amid the Monday mayhem.
Copper is also bearing the brunt of the pandemic. Nicknamed Dr. Copper for being a reliable barometer to track the health of the world economy, the widely-used industrial metal is taking some beating of late amid plunging oil prices and coronavirus fears.
Prices of the red metal — which is used across a wide swath of industries — tumbled to a three-year low last week on increasing worries of the impact of the pandemic on the world economy. Copper prices had been gaining on hopes of easing trade tensions and pickup in manufacturing prior to the outbreak.
Copper prices continued to slide this week on demand concerns with prices on the London Metal Exchange (LME) settling at the lowest level since November 2016 on Monday. The price rout continued on Tuesday as signs of a slowdown in China, reflected by dismal industrial production data for January and February, raised concerns of a further drop in demand.
Slowing Outbreak in China Gives Hopes
Life in China in springing back to normalcy after weeks of lockdown, thanks to waning new cases. Although the virus is fast-spreading globally, stringent containment measures imposed by Beijing appear to have slowed it down.
Notably, reports of new cases in Hubei, which accounted for roughly two-third of global cases, have significantly reduced of late. While fresh cases are gradually fading, there have been reports of an increasing number of recoveries. Factories have started to gradually resume operations across China’s provinces with activities expected to pick up in April. Transport restrictions have also been eased across several provinces and cities.
Moreover, Chinese authorities have pledged a raft of stimulus measures to counter the economic fallout from the outbreak. Beijing is reportedly planning to rev up the economy with big infrastructure spending and is also taking steps to boost domestic consumption. Actions to drive consumptions include reduction of import tariffs on consumer goods.
The outbreak is likely to have a devastating effect on China’s first-quarter economic growth with some lingering impact expected in the second quarter. However, government stimulus measures are likely to cushion the country’s crisis-hit economy and usher in a better second half.
5 Materials Stocks Worth a Bet Now
Coronavirus will undoubtedly deliver a short-term blow to the Basic Materials sector as demand for commodities takes a hit in China. However, increased stimulus from the China government and efforts to boost consumption are likely to bring the world’s second-largest economy back on track in the second half of the year. As such, it would be prudent to zero in on some quality stocks in the materials space that boast healthy prospects.
We highlight the following five stocks, with a solid Zacks rank, that are worth considering for investment right now. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Franco-Nevada Corp.: This gold-focused royalty and stream company sports a Zacks Rank #1. It has an expected earnings growth rate of 24.2% for the current year. Over the last 60 days, the Zacks Consensus Estimate for its current-year earnings has gone up 5.6%. The company also delivered positive earnings surprises in each of the trailing four quarters, the average positive surprise being 18.8%.
Kirkland Lake Gold Ltd.: The gold mining company, sporting a Zacks Rank #1, has an expected earnings growth rate of 47.5% for 2020. The Zacks Consensus Estimate for its current-year earnings has advanced 30.3% over the past 60 days. The company also delivered positive earnings surprises in three of the trailing four quarters, the average positive surprise being 3.3%.
Newmont Corporation: The gold mining giant currently carries a Zacks Rank #1. It has an expected earnings growth rate of 72% for this year. Over the last 60 days, the Zacks Consensus Estimate for its 2020 earnings has moved 15.8% north.
Daqo New Energy Corp.: This leading producer of high-purity polysilicon currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 8.8% in the last 60 days. The company also has an expected earnings growth rate of 336.1% for 2020. Moreover, it has an estimated long-term earnings growth rate of 29%.
Gerdau S.A.: The leading long steel producer in Latin America, carrying a Zacks Rank #2, has an expected earnings growth rate of 85% for the current year. Over the last 60 days, the Zacks Consensus Estimate for its current-year earnings has advanced 2.8%. The company also has an estimated long-term earnings growth rate of 23.7%.
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