Teck Resources Ltd. (TSX:TECK.B): Time to Buy the Dip?

Teck Resources Ltd. (TSX:TECK.B)(NYSE:TECK) is down in recent weeks. Should you buy today?

| More on:

Teck Resources Ltd. (TSX:TECK.B)(NYSE:TECK) is approaching its lows for 2017, and investors are wondering if this is a good time to buy or to book profits and stay on the sidelines.

Let’s take a look at the current situation to see if Teck should be in your portfolio right now.

Coal, copper, zinc, and oil outlook

Teck produces metallurgical coal, copper, and zinc. The company is also a 20.89% partner in the Fort Hills oil sands development.

Metallurgical coal prices have leveled off after a volatile run in 2016 that saw the price rally from US$90 per tonne to above US$300 per tonne in less than six months before pulling back more than 50% to below US$150 in the first half of last year. Since then, the market has bounced around, and Teck’s average quarterly realized sale price has ranged from approximately US$160 to US$215 per tonne.

Copper also saw a nice surge, moving from US$2 per pound in early 2016 to above $3 per pound late last year and has traded in a $3-$3.30 range for most of 2018. At the time of writing, the base metal is testing its low for the year, so investors will want to see if the drop is a short-term dip or the start of a larger reversal.

Zinc had its own impressive run, rising from below US$0.80 per pound in early 2016 to above US$1.60 at the beginning of this year. A sharp pullback has zinc trading back around US$1.33 per pound, which is the lowest it has been since late last summer. As with copper, investors should keep a close watch on zinc to see if the downward trend picks up steam.

Oil is moving in the opposite direction with WTI prices recently topping US$72 per barrel, which is the highest the market has been since 2014. Fort Hills is expected to average 90% of its production capacity in Q4 2018, and the project appears to have gone online at just the right moment. The site has a 50-year life span, so there is significant long-term potential for Teck to see healthy free cash flow from Fort Hills.

Financials

Teck reported Q1 2018 adjusted profit of $753 million, or $1.31 per share, compared to $655 million, or $1.13 per share in Q1 2017.

The balance sheet is in good shape with $1.3 billion in cash and unused credit lines of US$3 billion. Debt is down to a reasonable level at US$5 billion, and the company only has US$220 million in debt coming due before 2022.

Should you buy?

Teck is down to $33 per share from $38 just a few weeks ago. The company is making good money at current commodity prices, so base metal bulls might want to start nibbling on further weakness. At this point, however, I would wait for a confirmation that copper and zinc have stabilized before jumping in and buying the stock.

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 Andrew Walker has no position in any stock mentioned.

More on Energy Stocks

analyze data
Energy Stocks

Buy 8,850 Shares of This Top Dividend Stock for $2,000/Month in Passive Income

Let's do the math on what it would take to generate $2,000 a month in passive income from Enbridge (TSX:ENB)…

Read more »

oil and gas pipeline
Energy Stocks

Is TC Energy Stock a Good Buy?

TC Energy stock has a lot going for it, but there are also a few red flags to consider before…

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Is Canadian Natural Resources Stock a Good Buy?

CNRL is an energy giant with a market capitalization near $100 billion.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Baytex Energy Stock a Good Buy?

Baytex Energy is a TSX stock that has massively underperformed the broader markets in the past decade, but it trades…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Suncor a Buy for its 4.2% Dividend?

Suncor Energy (TSX:SU) has a 4.2% yield. Is it a buy?

Read more »

engineer at wind farm
Energy Stocks

Energy Stocks to Buy Now: Top Picks for Canadian Investors

These companies have a solid business model and growing cash flows to support higher dividend payments and share prices.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Is Enbridge Stock a Good Buy?

Enbridge provides a 6.5% dividend yield right now.

Read more »

Oil industry worker works in oilfield
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor stock looks undervalued as the company continues to increases cash flows, earnings, and shareholder returns.

Read more »