Why the Current Copper Cycle Is Good for This Stock

In this video clip from "The Rank," recorded on Feb. 14, Motley Fool contributors Matthew Frankel, CFP®, Jason Hall, and Tyler Crowe discuss Teck Resources (TECK -1.24%), a diversified natural resources company that focuses on coal, zinc, energy, and -- importantly -- copper. Here's why Teck may be a stock to consider if you can keep up with the cyclical nature of the commodities industry.

Tyler Crowe: Teck Resources. It's a diversified minor. Mostly it's divided up into three or four categories, four categories right now it's copper, zinc, metallurgical coal, and they call it energy. They have an outgoing interest on some shale oil in Canada. The big bet that you're looking at when you're looking at Teck Resources is its investments in copper, and what the copper market is expected to do over the next several years, and who cares about copper? Well, if you're looking at anything to do with the electrification of everything, electronic vehicles or EVs, renewable energy, we're looking at wind turbines and things like that. The demand for copper is going to go through the roof. It is projected to grow considerably over the next several years. I was just looking at the Teck Resources slide deck, and I shouldn't have picked two things with such close names for this particular one. [laughs] The projected copper demand between now and 2030 is expected to grow 26% annually. Which when we're talking about growth stocks, 26 doesn't sound like much, but when we're talking about one of the largest commodities in the world, 26% annually is a big deal, and so we're looking at a period of massive demand, and we're coming off a period of weak development in the copper market for new mines trying to ramp up supply. Very similar to what I was talking about what Textainer with commodities boom early, we had this winning time, lack of investment, and now we're heading in demand surge again, and Teck Resources is one of the very few companies that has a very large upcoming project. Between now and 2023, they're going to double their copper output with new mine, I can't remember specifically, I think it's Canada, and so going to double their production over the next year and a half with very favorable copper prices priced into that, and with the expected demand over the next several years, this is looking like a great bridge for them as they start to divest or just let their other assets, like metallurgical coal and shale, oil sands just generate cash, and just dwindle away as the assets just peter out.

Jason Hall: I think it's really interesting, Tyler, I think one thing, too, about the copper, it's like foundation of the thesis is that, I can't remember exactly where I read it, but over the next 25 or 30 years, global copper production needs to double on a global basis. How much we produce every single year has to be double what it was a year or two ago. That's great when you're in a cyclical industry. It's like we were talking about what Textainer. When you start having a large proportion of your business, it's tied to basic materials and cyclical industries, and that kind of thing. I just tend to shy away. I don't think they're necessarily a fit for my investing style. I own a lot of stocks, some I pay a ton of attention to, but a lot of them I might look at them once a quarter, more than just reading through their release, I might look at them a little bit more than that. Most of them I don't. I'm just making sure that I'm understanding what's going on with the commodity curve, pricing, all of those things over the long term. I don't trust myself to do that well with a company like Teck Resources. So I don't invest in those companies. It has so many things in its favor right now that are probably going to work out. It doesn't work for my investing style. Matt?

Matt Frankel: Yes. Go ahead, Tyler.

Crowe: Yeah. Totally makes sense. A topic you and I talked about is oil investing. It's really hard to predict the cycles, or when they're going to end, when they're going to begin. But there are windows of investment in them and they're not buy forever stocks, they're probably buy to recycle. I think with what I'm seeing in these two cycles that we're just talking about containers and copper, they are not exactly lined up, but similar in that sense of what we've seen in oil where there's been underinvestment for a really long time. We're going to have to play catch-up for several years. Those several-year periods of higher prices and growth are going to look good for a couple of years. I think there's a good window of opportunity in that time.

Frankel: Like Tyler just said, this is what I was going to mention. They seem like really good stocks to buy, Teck Resources and other oil, mining, whatever, they seem like great stocks to buy for people who really understand the cycles of those industries, which I don't. Generally, I like to buy stocks that I don't worry about the cycle, I know they're going to be great investments forever and ever and ever. That's why I ranked this low. Interestingly, Jason and I both ranked this No. 9 out of nine, and Tyler ranked this No. 1 out of nine.

Hall: The takeaway is you should trust Tyler more than you trust us.

Frankel: The takeaway is he knows how to evaluate the cycles of these businesses a lot better than either of us do.