The Stock Picker’s Guide to Teck Resources for 2014

This stock is certainly out of style. Has that created an opportunity?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Five years ago, the news could not be any worse for Teck Resources Ltd (TSX:TCK.B)(NYSE:TCK). The diversified miner was in financial trouble. It had just acquired the remaining stake in Fording Coal the previous summer, right before the world’s financial system went into a tailspin.

Suddenly Teck was not only facing declining markets for its commodities, but was having difficulty refinancing a bridge loan used to acquire Fording. Many people thought the company would declare bankruptcy, and by early March 2009, the stock price was below $4.

Teck was able to save itself through a variety of means. The company suspended its dividend, sold assets, and raised equity. The markets for Teck’s products recovered. By early 2011, the shares were trading above $60. CEO Don Lindsay, who deserved much of the blame for leading Teck into the precipice, also deserved much of the credit for the company’s recovery.

Today the stock once again trades below $30. The price that Teck can fetch for its products is down significantly relative to three years ago. While the situation is not nearly as bad as it was in 2009, one cannot help but wonder if this market downturn has created another opportunity.

Teck is Canada’s largest base-metals miner, focusing primarily on coking coal (47% of gross profit), copper (38%) and zinc (15%). The company also is a junior partner in the Fort Hills Oil Sands project, which is operated by Suncor (TSX:SU)(NYSE:SU). In all of Teck’s areas of business, the largest risk by far is China.

While China’s growth over the past 30 years has been nothing short of spectacular, it has slowed considerably in recent years, currently sitting between 7% and 8% per year. Many economists worry that the news could get much worse, since China’s growth has been fueled mainly by capital investment. Credit has been cheap, which has prompted the construction of many buildings which today remain empty. This has prompted worries of a bubble.

If this is indeed the case, then it is the steel market that is most at risk. Teck, whose coking coal exports are used to make steel, would of course feel a lot of pain. Teck’s other products, copper and zinc (and eventually oil), would also feel the brunt of worsening conditions in China.

These concerns about China are most likely the biggest reason that Teck’s shares are down by over 50% over the past three years. Other miners’ shares have been affected in a similar way. Copper miners Hudbay Minerals (TSX:HBM)(NYSE:HBM) and Lundin Mining (TSX:LUN) are down by 48% and 28%, respectively, over the past three years. The world’s largest miner, BHP Billiton (NYSE:BHP), is down by 21%.

But Teck has proven to be especially unpopular in recent years, which may have created a buying opportunity. Perhaps many people still have nightmares about what the company did in 2008, and still do not trust Mr. Lindsay, who today remains the CEO. But he has been much more prudent recently. The company has gradually been improving its position on the cost curve, and as a sign of capital discipline, Teck’s share count has actually decreased in the last three years. The company’s balance sheet also remains relatively sturdy, with net debt of $9 per share.

Nevertheless, Teck’s exposure to Chinese investment makes this a risky pick for any investor. Time will tell if those willing to take that risk get rewarded.

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 Benjamin Sinclair has no positions in any of the stocks mentioned in this article.

More on Investing

Payday ringed on a calendar
Dividend Stocks

How to Convert $500 Monthly Investment Into $200 Monthly Income

If you want the stock market to give you regular monthly income, you have to invest in the stock market…

Read more »

falling red arrow and lifting
Investing

RRSP Investors: 3 Dividend Stocks to Buy on the Dip

Inflation has delayed retirement for Canadians. RRSP investors should buy cheap dividend stocks like Fortis Inc. (TSX:FTS)(NYSE:FTS).

Read more »

Growth from coins
Tech Stocks

Got $1,000? Buy These 3 Under-$20 Growth Stocks to Earn Higher Returns

These under-$20 growth stocks can deliver solid returns in the long run.

Read more »

worry concern
Dividend Stocks

3 Ultra-Safe Dividend Stocks for Jittery Investors

Motley Fool investors nervous about the market downturn should consider these ultra-safe dividend stocks that keep paying passive income no…

Read more »

Economic Turbulence
Cryptocurrency

The TSX’s 1st Crypto ETF Lost $500 Million in 1 Day

The TSX’s first crypto ETF lost $500 million is one day and is down nearly 58% year to date.

Read more »

House Key And Keychain On Wooden Table
Dividend Stocks

Is the Real Estate Boom Finally at an End?

It might be hard to believe, but Canada’s decades-long housing boom might be at an end.

Read more »

stock analysis
Investing

RRSP Investors: 2 Oversold TSX Financial Stocks to Buy for Total Returns

Top TSX financial stocks look oversold right now for RRSP investors seeking attractive dividends and total returns.

Read more »

Investing

Got $500? 3 Undervalued TSX Stocks for Superior Returns

These undervalued stocks have strong potential for growth and will likely generate superior returns in the long term.

Read more »