over 2 years ago • 2 mins
The rally in commodity prices has had everyone’s attention lately, and as analysts at Goldman Sachs recently pointed out, investing in metals and mining (M&M) firms could be a great way to jump on that bandwagon.
Compared to the last commodity boom years ago, M&M companies are currently spending less on capital expenditures, and Goldman’s expecting this more disciplined spending approach to continue.
Couple that with the firms having less debt than they have done historically, meaning lower interest payments and loan repayments.
And even though the stage is set for a surge in demand in metals like copper (of an estimated 600% by 2030), production has been – and is expected to remain – pretty flat.
So supply and demand being as it is, prices of commodities have already started to rise. And whether or not they’ve got further to go, those higher prices should translate into higher earnings and cash flows for miners – the highest in over a decade, in fact. And Goldman thinks that cash is likely to be returned to shareholders by way of dividends and share buybacks.
The European M&M industry is expected to deliver $109 billion worth of FCF this year – three times last year’s amount. By Goldman’s calculation, that’s a 10-14% FCF yield. Or put another way, if you owned the entire sector and it paid out all its free cash (as the firm expects most of it will be), you’d receive 10-14% of your investment back in cash before accounting for any share price movements.
The table below sets out the companies in the industry along with key financial metrics and ratios.
If you’re in the mood for picking individual stocks, these stand out:
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.