2 Market-Beating Mining Stocks for Your TFSA

Profit from the rally in copper and zinc prices by buying Hudbay Minerals Inc. (TSX:HBM)(NYSE:HBM) and Lundin Mining Corp. (TSX:LUN).

| More on:

Last year was a great year for copper and zinc producers. Copper price surged by 30% to US$3.27 a pound in 2017, reaching a four-year high. The copper price has gained more than 50% in value since hitting a multi-year low at the beginning of 2016.

The rally for zinc has been even more spectacular, ending 2017 at a decade high of US$3,330 a tonne. The zinc price has more than doubled since it hit bottom two years ago.

The surge in copper and zinc prices has been beneficial for producers of those metals. Since copper and zinc prices are expected to continue to rise this year, it’s a good time to buy shares of copper and zinc producers.

I present below two companies in the metals and mining sector that produce both copper and zinc. Both stocks have outperformed the TSX in 2017, and I expect it will be the case again this year.

Hudbay Minerals Inc. (TSX:HBM)(NYSE:HBM)

This integrated mining company’s stock rose by 45.2% in 2017, far above the return of 6% achieved by the TSX.

Hudbay reported a strong rise in profit and revenue in the fourth quarter of 2017 due to higher copper and zinc prices.

While Hudbay incurred a loss of US$47.3 million in 2016 fourth quarter, it reported a profit of US$99.7 million, or US$0.38 per share, in the fourth quarter of 2017. This beats analysts’ estimates, who’d expected EPS of US$0.25.

For 2017, Hudbay reported a profit of US$164 million versus a loss of US$35.2 million in 2016.

Hudbay’s quarterly revenue soared by 31% to US$414 million, beating analysts’ estimate of US$368.7 million.

The miner continues to grow positive free cash flow and is reducing debt. Operating cash flow was US$172 million in the fourth quarter of 2017, a 41% increase from the fourth quarter of 2016. For the full year, Hudbay increased its operating cash flow by 37% to US$531 million.

Hudbay reduced its net debt position by US$462 million from US$1.09 billion at the end of 2016 to US$623 million at the end of 2017.

Hudbay’s stock is deeply undervalued. Indeed, its forward P/E is very low at 9.4. If you look at the PEG expected over five years, it is only 0.14. That means the stock is very cheap relative to its high expected future growth, which is expected to be 71.3% per year on average for the next five years. Rising trends in copper and zinc prices will drive growth for this miner.

Lundin Mining Corp. (TSX:LUN)

This diversified base metal mining company’s stock rose by 32.5% in 2017.

Net earnings were US$133 million, or US$0.18 per share, in the fourth quarter of 2017, down from US$148.7 million a year earlier. This beats analysts’ estimates, who expected earnings of US$0.14 per share. Net earnings for 2017 increased by 302% from US$92.4 million to US$371.4 million.

Lundin’s quarterly sales amounted to US$533.3 million — up 16% from the fourth quarter of 2016. Analysts expected lower sales of US$528 million.

The mining company reported operating cash flow of US$230.1 million in the fourth quarter of 2017 — an increase of 113% from the last quarter of 2016. For the full year, the company reported operating cash flow of US$903.5 million — an increase of 149% from a year earlier.

Lundin improved its balance sheet significantly: it had a net cash position of US$1.1 billion at the end of 2017 compared to a net debt of US$284.1 million at the end of 2016.

With a PEG expected over five years of only 0.4, Lundin is undervalued. Earnings are estimated to grow at a high rate of 44.5% per year on average over the next five years. Like Hudbay Minerals, Lundin Mining will profit from higher copper and zinc prices.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Stephanie Bedard-Chateauneuf has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »

Canadian Dollars bills
Metals and Mining Stocks

2 Cheap Canadian Stocks Under $20 to Buy This November

Cheap TSX stocks such as Endeavour Silver are trading at an attractive valuation in November 2024.

Read more »

nugget gold
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for its 1.06% Dividend Yield?

A top gold stock with a modest yield is a buy for its lengthy dividend-growth streak.

Read more »

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »