Simultaneous positive catalysts should make for a strong year for the sector
- Investors will want to carve space in their portfolios for these promising materials stocks.
- Pan American Silver (PAAS): Geopolitical instability should boost silver and gold prices.
- West Fraser Timber (WFG): Higher demand for housing should lift EFG stock in 2024.
- Freeport McMoran (FCX): The world’s largest copper producer should be boosted by Chinese stimulus and decarbonization efforts.
Lower interest rates will likely cause many more homes and automobiles to be built. So, most basic materials stocks should thrive next year.
Meanwhile, China’s government recently elected to increase its spending by $137 billion. Clearly, Beijing is ready and willing to stimulate the world’s second-largest economy, a big consumer of basic materials.
Also boosting many basic materials stocks in 2024 will be the ongoing EV Revolution. Additionally, the continuing Energy Transition and the “flight to safety” trade will continue. Therefore, investors who focus on these positive, powerful catalysts should consider three top basic materials stocks to buy.
Pan American Silver (PAAS)
Pan American Silver (NYSE:PAAS) has high exposure to silver and gold, two metals expected to climb in 2024. For 2023, PAAS expects to produce 870,000 to 970,000 karats of gold and 21 to 23 million ounces of sillver.
Further, gold should get a big lift from lower interest rates. This will likely continue to erode the dollar’s value in 2024. And, other factors are likely to push up gold prices. Namely, the huge U.S. debt, the wars in the Middle East and Ukraine, and Washington’s dysfunction will contribute.
Meanwhile, silver is also a “safe haven” asset. Also, it’s extensively used in solar energy, hybrid vehicles and electric vehicles.
Finally, PAAS’s average total production costs for this year are a reasonable $1,275 and $1,425 per gold ounce and $14 and $16 per silver ounce. On average, analysts expect company earnings per share to climb to 72 cents next year. That indicates an increase from 22 cents in 2023.
West Fraser Timber (WFG)
Vancouver-based West Fraser Timber (NYSE:WFG) is a company to watch.
Single-family home prices are likely to sink next year as lower interest rates cause more homeowners to sell their homes. Also, lower rates may increase the demand for new homes, causing homebuilders to tremendously increase construction of new homes.
Expect homebuilders to sell more homes in order to elevate bottom lines, despite the decline of prices. The latter process may have already started. Lumber futures have jumped from $465 per 1,000 feet on Oct. 24 to $566 on Dec. 28.
In Q3, the company’s revenue climbed to $1.7 billion versus $1.6 billion in the previous quarter. Its EBITDA, excluding certain items, rose to $325 million from $80 million in Q2. WFG stock has a reasonable forward P/E ratio of 19.
Freeport McMoRan (FCX)
As the world’s leading copper producer, Freeport McMoRan (NYSE:FCX) is exceptionally well-positioned for 2024.
Copper is widely used in many industries, including transportation, electricity generation and construction. And China is the top country when it comes to copper consumption.
In November, Goldman Sachs predicted that global GDP would expand at a fairly robust 2.6% rate in 2024. That represents little change from its 2.7% estimate for 2023. Given a scenario of interest rates dropping, economies boosted by the EV Revolution, the Energy Transition, and AI, the forecast will likely prove to be conservative.
Additionally, Beijing appears ready to stimulate the Chinese economy, a move that should greatly stimulate copper demand. Notably, copper prices will likely be boosted by the increased demand for electricity triggered by the electrification of transportation.
Finally, analysts already expect Freeport’s earnings per share to climb to $1.63 in 2024 from $1.45 in 2023.
This post originally appeared at InvestorPlace.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
