Investors with some cash on the sidelines might want to search for top TSX cyclical stocks to add to their portfolios. The next phase of the market rally could shift from growth stocks to companies that normally do well during an economic upswing.
Why Teck Resources could be a top TSX cyclical stock to buy today
Teck Resources (TSX:TECK.B)(NYSE:TECK) is Canada’s largest diversified mining company producing metallurgical coal, copper, and zinc.
The stock has a history of going on wild rides. Investors who buy near a cyclical bottom can generate massive returns over the course of two or three years. However, this stock also tends to plunge when the market for its core products becomes oversupplied and prices tank.
Copper prices rallied from US$2 per pound at the low of the 2020 crash to recent highs near US$4.20. The metal currently trades near US$4 as traders try to decide if the rally has gone too far or is simply taking a pause before another major leg to the upside. Bulls say supply is tight ahead of a massive global stimulus effort that could drive strong copper demand for the next few years.
The E.U. and the United States have unleashed record stimulus plans that will target renewable energy and infrastructure investments. This should boost copper and steel demand. Copper is a key component in electric vehicles, wind turbines, and solar panels. Steel prices are already rising as major infrastructure projects such, as new bridges, get the green light around the world. That bodes well for demand for metallurgical coal used in the production of steel.
Teck is also a partner in the Fort Hills oil sands facility. The price of WTI oil soared from US$36 per barrel last fall to as high as US$66 earlier this month. Oil is down from the highs but still trades close to US$59 at the time of writing. Analysts increased price targets in recent months, with some eyeing US$75 this year and a potential run to US$100 per barrel in 2022 or 2023.
If oil extends the gains, Teck Resources should get an added boost. It’s also possible that Teck Resources might sell its stake in Fort Hills to concentrate on the legacy business operations.
Teck Resources trades near $22 per share at the time of writing. The stock fell as low as $9 last March and rallied to $29 in February. The pullback in the past few weeks is a combination of profit taking and a dip in copper prices. Investors might also be scaling back expectations for the economic recovery due to the emergence of a third COVID-19 wave in Europe and other areas.
Additional downside could be on the way before the next leg up, but investors might want to start nibbling near the current price. Teck Resources bounced from $5 per share in March 2009 to $60 in January 2011 after the Great Recession. The stock soared from $5 again in early 2016 to $36 two years later.
As you can see, it is important to get out before commodity prices roll over, but there is good opportunity to make some decent money with Teck Resources during the recovery phase.
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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 has no position in any stock mentioned.