4 Reasons to Buy Teck Resources Ltd. Right Now

Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) had a nice bounce last week. Here’s why the stock could continue to move higher.

| More on:
The Motley Fool

Teck Resources Ltd. (TSX: TCK.B)(NYSE: TCK) has been a big disappointment for investors this year, but there might be some holiday cheer on the way.

Let’s take a look at four reasons why I think new investors should consider adding Teck to their portfolios right now.

1. Metallurgical coal rebound

The largest part of Teck’s business is the production of metallurgical (steelmaking) coal. In 2011, met coal sold for $330 per tonne. The price has been hovering around the $110 mark for much of 2014. At this level, roughly 30% of the world’s producers are unprofitable. North American miners have been cutting output but the market is still oversupplied due to reduced demand from China and higher production in Australia.

That’s about to change. Teck stated in its Q3 2014 earnings statement that the met coal market should come back into balance during the second half of 2015. China’s decision last week to cut interest rates sends the message that the country is ready to stoke the furnace of economic growth. This should bode well for met coal demand and the move could tip the supply balance sooner than expected.

Teck is still profitable at current prices. The company’s Q3 met coal production cost came in at $84 per tonne and agreements are in place for the fourth quarter to sell the company’s supplies at $119 per tonne.

2. Low-cost copper producer

Despite the tough market conditions for copper miners, Teck’s copper unit is still delivering solid cash flow. In the third quarter, Teck reported gross margins of 46% in its copper operations. This is great news for investors, because copper prices have probably hit bottom around $3.00 per pound.

3. Fort Hills oil production

Teck has a 20% stake in the Fort Hills oil sands project. Investors should pay close attention to this because the facility is set to switch from development to production in late 2017. By the end of 2018, Fort Hills should be pumping out nearly 160,000 barrels of oil per day.

The reduction in capital outlays combined with the increased revenue should have a huge impact on Teck’s free cash flow in next few years.

4. Stable dividend

Teck’s $0.90 per share dividend should be safe. The company reported earnings of $0.28 per share for Q3 2014 in a very tough environment. As a low-cost producer with a very disciplined approach to capital deployment, Teck should be able to maintain the distribution even if commodity prices remain low.

Should you buy?

As met coal and copper prices rebound and capital outlays for the Fort Hills project wind-down, free cash flow should increase sharply. The best time to pick up Teck is during a slow point in the commodity cycle, but you need to be comfortable with periods of volatility.

Right now, the 4.5% yield is a nice benefit while you wait for better times. If you prefer stocks that are less volatile, but pay growing dividends an deliver consistent capital appreciation, you might be interested in the following free report.

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 owns shares of Teck Resources Ltd.

More on Metals and Mining Stocks

A child pretends to blast off into space.
Stocks for Beginners

Want $549 in Annual Income? Invest $7,000 in This Stock in a TFSA

If you're looking to create some long-term growth, then certainly consider this top dividend stock offering monthly income.

Read more »

space ship model takes off
Metals and Mining Stocks

Meet the Monster Stock That Continues to Crush the Market

Soaring gold demand amid tensions worldwide offers the tailwinds that this TSX gold stock needs to deliver market-beating returns, and…

Read more »

a person watches a downward arrow crash through the floor
Metals and Mining Stocks

1 Materials Stock Down 71% to Buy Right Now

Down more than 70% from all-time highs, this TSX stock offers significant upside potential to shareholders in June 2025.

Read more »

todder holds a gold bar
Metals and Mining Stocks

Best Stock to Buy Right Now: Barrick Gold vs Franco-Nevada?

Let's dive into whether Barrick Gold (TSX:ABX) or Franco-Nevada (TSX:FNV) are the better pick for gold-focused investors right now.

Read more »

Car, EV, electric vehicle
Metals and Mining Stocks

Building a $42,000 TFSA That Focuses on Future Industry Leaders

Investing in quality growth stocks such as Electrovaya should help TFSA investors deliver outsized gains in the next decade.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Is Magna Mining a Good Stock to Buy?

Magna Mining is a Canadian penny stock that trades at a cheap valuation in June 2025, given its growth estimates.

Read more »

nugget gold
Metals and Mining Stocks

2 No-Brainer Gold Stocks to Buy With $500 Right Now

With gold shining brighter than ever, these two Canadian gold stocks look like smart buys for long-term investors.

Read more »

Piggy bank and Canadian coins
Metals and Mining Stocks

Everyone’s Talking About Silver Stocks: Here’s 1 ETF to Consider

iShares Silver Trust (NYSEARCA:SLV) and the silver stocks could be in for some summertime strength.

Read more »