What Makes Teck Resources Limited (TECK) a Good Buy?

We recently compiled a list of the 8 Best Rare Earth Stocks and ETFs. In this article, we are going to take a look at where Teck Resources Limited (NYSE:TECK) stands against the other rare earth stocks and ETFs.

Rare earth elements (REEs), which refers to 17 metals that are similar chemically, are surprisingly abundant in Earth's crust. However, their dispersion and geochemical properties make them difficult and expensive to extract, leading to them being called "rare."

REEs are important for a vast range of technologies, earning them the nickname "vitamins of modern industry." Apart from being irreplaceable for clean energy and consumer electronics production, REEs are also strategic for defense and aerospace engineering, the production of aircraft, missiles, satellites, and communication systems.

Hence, it is no wonder that the global rare earth metals market is valued at an estimated $5.65 billion in 2024. Analysts project this market to experience steady growth, reaching $8.63 billion by 2031. This is equivalent to a compound annual growth rate (CAGR) of 6.2% over this period, indicating a promising future for the industry.

China has been dominating the rare earth metals market for decades producing a staggering 240,000 metric tons last year, over five times more than its closest competitor, the United States, according to US Geological Survey data. China further maintains its control by processing around 90% of the world's rare earths into permanent magnets used in various technologies. In 2022, China accounted for 70% of global production of REEs.  This dominance stems from a combination of factors, including historical geological exploration efforts, favorable mining conditions, and government support for the industry.

Brazil, along with other Western countries, is currently working towards breaking China’s dominance of this industry. Brazil has advantages like low labor costs, clean energy, and established regulations. However, challenges include low rare earth prices which have gone down 70%, technical difficulties, and getting funding. Despite these challenges, Brazil is making progress with its first mine in operation and increased government support for the industry. To jumpstart its rare earth industry, the Brazilian government allocated 1 billion reais ($194.53 million) in February to fund strategic mineral projects.

Other countries are also working towards diversifying the supply chain. In recent years, the United States has sought to mitigate risks related to the REEs’ supply chain. This includes restarting domestic mining operations, like the Mountain Pass site in California, and building processing facilities to avoid reliance on China. This objective of supply chain diversification has also led the US to secure deals with Vietnam on minerals and semiconductors.

Similar to the United States, the European Union (EU) is also actively promoting domestic extraction projects in countries such as Sweden, Finland, Spain, and Serbia. This is part of the EU's efforts to enhance its self-sufficiency in critical minerals, including rare earth elements.

Our Methodology

To shortlist the best rare earth stocks, we relied on Insider Monkey's database of 919 hedge funds as of Q1 2024 to analyze the hedge fund sentiment for each stock. We picked the rare earth stocks with the highest number of hedge fund investors. Furthermore, we included two of the best rare earth ETFs, chosen for their impressive 3-year returns. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A close up of an automated machine processing other Industrial Metals & Mining resources.

Teck Resources Limited (NYSE:TECK)

Number of Hedge Fund Holders: 60

Teck Resources Limited (NYSE:TECK), a Canadian diversified mining company founded in 1913, engages in the exploration and production of natural resources across continents.

The company primarily focuses on steelmaking coal, copper, zinc, and energy. In addition to its main commodities, Teck Resources Limited (NYSE:TECK) also produces lead, silver, molybdenum, and various other metals, chemicals, and fertilizers. The company is also involved in gold exploration.

Teck Resources Limited (NYSE:TECK)'s Q1 2024 earnings call revealed that the adjusted EBITDA came in at $1.7 billion, driven by strong steelmaking coal and copper prices. Copper sales volumes increased, and steelmaking coal prices remained high compared to the same period last year. Revenue reached $3.98 billion, up 5.36% from Q1 2023.

Analysts have a positive outlook for Teck Resources Limited (NYSE:TECK), with an average 12-month price target of $57.3. This represents a potential upside of over 20% from the current price levels. Price forecasts range from a low of $51.63 to a high of $66.9. Furthermore, 11 out of 12 analysts have rated the stock as a “Buy.”

Here’s what Greenlight Capital said about Teck Resources Limited (NYSE:TECK) in its Q1 2024 investor letter:

“Finally, we established a medium-sized macro position to benefit from higher copper prices. Long-time partners may recall that in 2021 we presented Teck Resources Limited (NYSE:TECK) at the Sohn Investment Conference. At the time, our thesis was based on a combination of being bullish on copper and believing that TECK was about to exit the penalty box after a multi-year investment in a new copper mine that was on the brink of finally coming online. Back then, TECK traded at C$31.09. Based on copper at $4.50 a pound, we thought the stock was undervalued by half. It has since doubled (and dramatically outperformed copper peer Freeport-McMoRan) and, over time, we have reduced the position into strength.

As we showed on this slide from our 2021 presentation, our thesis was that after several new mines, including TECK’s, there would not be new supply available in the second half of this decade.

Time has passed, the new mines have come online and the anticipated gap between supply and demand is likely to open up in the next year. While we still believe TECK is undervalued should copper prices rise, it is less undervalued than it once was. Our thesis now is that copper supply is about to fall short of demand, forcing prices substantially higher. Once again, we think the best way to invest in that thesis is the most direct way – in this case through options on copper futures.”

Overall TECK ranks 2nd on our list of the best rare earth stocks and ETFs to buy. You can visit 8 Best Rare Earth Stocks and ETFs to see the other rare earth stocks and ETFs that are on hedge funds’ radar. While we acknowledge the potential of TECK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TECK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.