The start of 2016 saw shares of Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) plummet to levels not reached since the Great Recession. Fast forward seven months later, with fears of a global economic slowdown and a hard landing in China’s economy largely in the rear-view mirror, Teck shares have rallied a staggering 300% off their lows.

But as remarkable as this turnaround has been, Teck has also reached dangerously overbought levels. In other words, those on the sidelines looking to get in on the action might be better served by waiting for a more attractive price and valuation.

Teck currently trades at a premium to commodity spot prices

In the midst of their fantastic rally, Teck’s shares have largely overshot the spot commodity prices, as apparent by the decoupling shown in the figure below, from both the broader commodity (green) and copper (red) indices.

Furthermore, while Teck continues to track the zinc break out, zinc prices would have to reach $1.60/lb, a 50% premium to the spot price, to justify Teck’s current market cap (based on Bank of Nova Scotia’s 2017 estimates).

Finally, although metallurgical coal prices have also rallied significantly pass the US$130-per-tonne level, the current spot price is still below Teck’s share implied premium of US$145 per tonne. Moreover, the bulk of the move in metallurgical coal will most likely prove to be temporary, as the market adjusts to the recent structural and policy shifts from China and India. Of note, the consensus forecasts for metallurgical coal continue to be well below the current price at just US$80 per tonne for the rest of 2016.*

Source: The Australian


Teck’s valuation is also stretched

Teck is currently trading at a premium to not only commodity prices, but also to its own historical average valuation as well as its peer group. At 8.4 times blended forward EBITDA, Teck’s valuation is one full standard deviation above its historical average of 7.1 times, while its EV to sales and P/BV multiples are two or higher sigma above their historical norms.



On the relative valuation side, Teck’s blended forward EV/EBITDA of 8.4 times and forward P/E of 30.7 times are well above its peer average of 7.7 times and 16.6 times, respectively.



In other words, this rich valuation is implying strong growth going forward. However, Teck is in the midst of a turnaround as it looks to cut costs and monetize its non-essential assets to improve its balance sheet. Moreover, with Fort Hills still under construction, near-term growth catalysts for Teck are virtually non-existent. Therefore, Teck’s valuation is largely unwarranted, and a bullish case cannot be justified on a fundamental level.

The exclusive buy "signal" you can't ignore

Over the course of The Motley Fool U.S.'s 23-year history, this rare buy "signal" has generated massive wealth for those that have been smart enough to pay attention to it. It's so rare, that it's happened less than two dozen times... but when it does, it's made investors undoubtedly rich. If you're interested in knowing the stock behind this rare buy "signal"--and you're excited to take advantage of this golden opportunity, then you're going to want to read this. Click here to unlock all the details behind this new recommendation from Stock Advisor Canada.


Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.

We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.

We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!

Fool contributor Zaw Tun has no position in any stocks mentioned.