Now is a good time to invest in copper--and here’s how to pick the best stocks
Traditionally, people invest in copper as a way to profit from general economic growth. Copper has a wide range of industrial uses (unlike gold and silver, which are thought of more as hedges against inflation). Copper is heavily used in the power-transmission and construction industries, in cables, wires and plumbing.
After dropping to as low as $2.17 U.S. per pound in mid-March 2020, copper rose steadily to a record price of $5.02 on March 6, 2022. Fears of supply chain disruptions and historically low stockpiles amid rising copper demand drove prices higher.
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However, the price of copper has since pulled back to $4.49. That’s mostly on concerns that high interest rates will continue to slow global economies. As well, investors worry about the pace of China’s economic recovery.
Longer term, the outlook for copper looks positive. From a supply standpoint, due to a lack of new mines, long-term copper shortages could result. As economies recover, they will push up demand—and that includes demand from segments such as electric vehicles (EVs) and green-energy related operations.
Copper’s industrial uses give it an advantage over gold and other precious metal stocks
Stocks of firms that produce base metals, including copper, generally have higher dividend yields than gold stocks. As well, they’re usually much cheaper than gold stocks in relation to their earnings and cash flow. That means they potentially have less room to fall if markets fall. That’s just another way of saying they can be considered somewhat less risky than gold and other precious metals.
As mentioned, copper should benefit not just from rising demand, but also from tightening supply. In the short term, labour problems and technical delays will continue to slow global copper production.
Over the longer term, ore grades are also falling at many major mines around the world as producers use up the easy-to-mine ore zones in their copper deposits. Environmental issues are also making it harder for companies to acquire permits for new mines.
To sum up, we like copper’s long-term prospects. But as always, stay out of promotional penny mines that are merely drilling for copper. Also stay out of investment vehicles (like options or futures) that will only make money for you if copper keeps going up in the short term.
All in all, most investor portfolios can include exposure to the Resources and Commodities sector of the economy, and that includes copper stocks. At the same time, though, resource stocks (and this includes oil and gas, of course) should in general make up only a limited portion of your portfolio.
Do you invest in copper? Why or why not?
