Teck Resources Ltd. Is up 500% Since January 2016: Why it’s a Better Investment Than Marijuana Stocks

Teck Resources Ltd. (TSX:TECK.B)(NYSE:TECK) continues to generate strong free cash flow as strong fundamentals continue.

The Motley Fool

Teck Resources Ltd. (TSX:TECK.B)(NYSE:TECK) is a $17.7 billion metals and mining company that specializes in the production of steel-making coal, copper, zinc, as well as various other metals.

With all the hype about marijuana stocks and Bitcoin, Teck can easily be missed; investors have been continually reminded of the potential of marijuana stocks, as they continue to dominate the headlines.

Canopy Growth Corp. (TSX:WEED), for example, has had a 634% return since January 2016. Aurora Cannabis Inc. (TSX:ACB) has had a more than 1,000% return since January 2016.

Those are phenomenal returns.

But let’s look at Teck’s stock performance since January 2016. The stock has had a 500% return in this period, and while it is lower than the two marijuana stocks’ returns, it is still a phenomenal return.

And let’s dig deeper now and dive into the risk of each of these investments, because, as we know, the higher the risk of an investment, the higher the return potential to the upside, but also to the downside.

The marijuana industry, while very promising, is a new industry. And with this, we have many inherent risks. What will the actual size of the industry be? What will the regulations ultimately look like? How profitable will companies in this industry ultimately be?

Canopy is currently trading at 66 times revenue. And while the most recent quarter, the second quarter of fiscal 2018 saw a 107% increase in revenue versus last year, the sequential increase was lower at 11%.

And the company’s net losses will continue for the foreseeable future, as in a new growth industry such as this, there will be heavy investment on building the company’s production, brand, and reach, among other things.

Let’s compare this to Teck. Trading at a price-to-sales multiple of 1.4 and a price-to-earnings multiple of seven, we clearly have a different sort of investment, but the differences bear mentioning.

Teck generates cash flow, pays a dividend, has a healthy balance sheet, and is currently benefitting from global economic growth and strong commodity prices.

In fact, Teck is generating free cash flow to the tune of $1.6 billion in 2016 and $2.5 billion in the first nine months of 2017. This cash flow has been used for dividend payments and to reduce the debt on the balance sheet.

In closing, while marijuana stocks seem to be trading on unbridled optimism on the hope of what might be, despite the many uncertainties, and with valuations getting into bubble territory, we have other stocks that are really benefiting from strong business fundamentals that are driving real shareholder value.

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 Karen Thomas does not own shares in any of the companies listed in this article.

More on Metals and Mining Stocks

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

If Gold Prices Continue to Climb, These 3 Stocks Could Skyrocket

Market certainty and geopolitical tensions typically enhance the demand for gold, and this rise is reflected in a wide range…

Read more »