Teck Resources Ltd. Is Set to Fall Off a Cliff … Again

After an incredible comeback in 2016, shares of Teck Resources Ltd. (TSX:TECK.B)(NYSE:TECK) are primed for another debacle.

| More on:
The Motley Fool

Not much has changed with shares of Teck Resources Ltd. (TSX:TECK.B)(NYSE:TECK) since the end of 2016, other than the momentum running out.

For those who did not follow the company during 2016, it was an incredibly eventful year!

With exposure to coal and President Obama wanting to do away with the resource, shares took a nosedive, reaching a level under $5 per share, which was completely understandable given the high amount of debt carried on the balance sheet.

With the passing of the baton to Mr. Trump, coal seems to be firing along again with the shares of Teck Resources. After an incredible recovery in the second half of 2016, shares are now trading at a price close to $31.50 per share, and investors are taking a huge gamble. The recovery took the shares to over $35!

The fantastic thing about mining companies is the ability to price the shares of the company. Given the work done by the company, investors are aware of the resource and how much of it is available to be mined by the company. Investors know how much the resource will be sold for. The pricing of mining stocks is often done based on tangible book value.

In the case of Teck Resources, the tangible book value per share as of the end of the third quarter of 2016 was approximately $26.65 per share, representing a share price which traded at an 18% premium to the tangible book value. Clearly, the market was a little euphoric.

Technical indicators 

Although investors should never make a decision to buy or sell a security based solely on technical indicators, it is often helpful to consider simple moving averages (SMAs) to understand how people at large (the market) feel about a security and where the momentum is guiding us.

In the case of Teck Resources, the momentum has clearly tapered off, and the stock has been trading sideways for several months now. Looking at the 10-day and 50-day SMAs, it is clear the fuel in the fire has run out. Given the incredible turnaround in the share price, the 200-day moving average is still trying the catch up with the current stock price in addition to the 10-day and 50-day averages.

Although the share price seems to be holding at current levels, investments are typically not made based on the potential for a share price to hold, but instead they’re based on the potential for investors to see an increase in the share price — especially with a mining company. Although existing investors have potentially made a significant amount of money, it will be very difficult for new investors to join the party and reap similar rewards. The security is anything but secure!

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 Ryan Goldsman has no position in any stocks mentioned.

More on Investing

Hourglass and stock price chart
Tech Stocks

1 Canadian Stock Ready to Surge Into 2025

There is a lot of uncertainty about the market in general as we move closer to the following year, but…

Read more »

think thought consider
Stock Market

Billionaires Are Selling Apple Stock and Picking up This TSX Stock Instead

Billionaires like Warren Buffett continue to trim stakes in Apple stock, with others picking up this long-term stock instead.

Read more »

ways to boost income
Dividend Stocks

1 Excellent TSX Dividend Stock, Down 25%, to Buy and Hold for the Long Term

Down 25% from all-time highs, Tourmaline Oil is a TSX dividend stock that offers you a tasty yield of 5%…

Read more »

canadian energy oil
Energy Stocks

Is Baytex Energy Stock a Good Buy?

Baytex just hit a 12-month low. Is the stock now oversold?

Read more »

Start line on the highway
Dividend Stocks

1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades

CN Rail (TSX:CNR) stock is incredibly cheap, but should investors join insiders by buying the dip?

Read more »

bulb idea thinking
Dividend Stocks

Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Read more »

a man relaxes with his feet on a pile of books
Investing

Outlook for Sun Life Financial Stock in 2025

Sun Life is up 25% this year. Are more gains on the way?

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $15,000 in This Dividend Stock, Create $5,710.08 in Passive Income

This dividend stock is the perfect option if you're an investor looking for growth, as well as passive income through…

Read more »