Investing in metals and mining remains a very tricky and risky proposition, but there are some promising indicators that the risk is becoming manageable, a new UBS bulletin suggests.
UBS Investment analyst Brian MacArthur said in a note to clients Wednesday:
Commodity prices and base metal equities have aggresively responded to selective leading indicators of economic stabilization and Chinese re-stocking.
In particular, copper and nickel equities are up 94% and 68% respectively, he said.
Weak conditions in North American industrial production could prove a problem. However, Mr. MacArthur sees the potential of a re-stocking event in the West, improving macro indicators (oil and steel prices, a rising purchasing managers' index and inflation expectations) and earnings per share momentum as "supportive elements" that limit the risk of a pullback in equities.
With that in mind, Mr. MacArthur has raised his base target multiples by about 20%, towards 5.5x for enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) and 1.1x for price/net asset value (P/NAV) ratios. This has produced an accordant 22% increase in target prices.
UBS is maintaining "Buy" ratings on Equinox Minerals (EQXMF.PK), First Quantum Minerals (FQVLF.PK), Freeport McMoRan (FCX), HudBay Minerals (HBMFF.PK), Lundin Mining (LMC), Mirabela Nickel (MRBAF.PK), and Teck Resources (TCX).