Let’s take a look at the current situation to see if Teck should be in your portfolio right now.
Coal, copper, zinc, and oil outlook
Teck produces metallurgical coal, copper, and zinc. The company is also a 20.89% partner in the Fort Hills oil sands development.
Metallurgical coal prices have leveled off after a volatile run in 2016 that saw the price rally from US$90 per tonne to above US$300 per tonne in less than six months before pulling back more than 50% to below US$150 in the first half of last year. Since then, the market has bounced around, and Teck’s average quarterly realized sale price has ranged from approximately US$160 to US$215 per tonne.
Copper also saw a nice surge, moving from US$2 per pound in early 2016 to above $3 per pound late last year and has traded in a $3-$3.30 range for most of 2018. At the time of writing, the base metal is testing its low for the year, so investors will want to see if the drop is a short-term dip or the start of a larger reversal.
Zinc had its own impressive run, rising from below US$0.80 per pound in early 2016 to above US$1.60 at the beginning of this year. A sharp pullback has zinc trading back around US$1.33 per pound, which is the lowest it has been since late last summer. As with copper, investors should keep a close watch on zinc to see if the downward trend picks up steam.
Oil is moving in the opposite direction with WTI prices recently topping US$72 per barrel, which is the highest the market has been since 2014. Fort Hills is expected to average 90% of its production capacity in Q4 2018, and the project appears to have gone online at just the right moment. The site has a 50-year life span, so there is significant long-term potential for Teck to see healthy free cash flow from Fort Hills.
Teck reported Q1 2018 adjusted profit of $753 million, or $1.31 per share, compared to $655 million, or $1.13 per share in Q1 2017.
The balance sheet is in good shape with $1.3 billion in cash and unused credit lines of US$3 billion. Debt is down to a reasonable level at US$5 billion, and the company only has US$220 million in debt coming due before 2022.
Should you buy?
Teck is down to $33 per share from $38 just a few weeks ago. The company is making good money at current commodity prices, so base metal bulls might want to start nibbling on further weakness. At this point, however, I would wait for a confirmation that copper and zinc have stabilized before jumping in and buying the stock.
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Fool contributor Andrew Walker has no position in any stock mentioned.