When debts are too easily accumulated, and paper currencies too easily printed into oblivion, savvy investors turn to hard assets for protection.
I spend a lot of my time writing about related opportunities in "hard-money" metals (namely gold and silver), but the commodity complex at large offers an array of hard assets that are bound to perform well through this age of "easy" monetary policy.
Since commodity prices have tumbled violently over the past year, I wonder whether Fools are taking advantage of this deep correction to accumulate long-term exposure to hard assets at today's far cheaper prices. I've already heaped attention onto excessively decimated gold and silver stocks like AuRico Gold (NYSE: AUQ), but today I want to turn your attention to an exciting opportunity in copper and coal.
Teck Resources (NYSE: TCK) approached its lowest share price of the trailing year this week after revealing sharply contracted second-quarter earnings of $312 million or $0.53 per share. Despite record copper production of 90,000 tons after a major mill expansion at its Antamina joint venture with BHP Billiton (NYSE: BHP) and other partners, a 14% reduction in realized copper prices and a 12% cost increase slapped Teck's bottom line.
Realized prices for Teck's metallurgical coal dropped by 26% from last year's record levels, while a labor disruption at Canadian Pacific Railway (NYSE: CP) curtailed production. Realized prices for zinc and lead tumbled by 15% and 22%, respectively, from their prior-year marks. All in all, it's safe to say this was a difficult quarter tor Teck, and the company rightfully concedes that "recent weakness in these markets may well persist over the near term."
But the longer term outlook is an entirely different story, and one that I urge investors to focus on when assessing these deeply impaired commodity stocks. Peabody Energy (NYSE: BTU) continues to forecast powerful global growth in demand for metallurgical coal, and Teck Resources is making the right investments in export capacity to supply that seaborne trade. Even after repaying $891 million in debt during the second quarter, Teck retains a sizable cash balance of $3.6 billion (nearly a quarter of its market capitalization). With a 2.% dividend yield, I am more than happy to wait for the inevitable rebound in commodity prices to spark a meaningful rebound. Although my bullish CAPScall on the stock is presently underwater along with most of my recent commodity picks, I will retain that call until the world's abundant paper money comes knocking once more in search of far scarcer hard assets.
- Add Teck Resources to My Watchlist.
- Add Peabody Energy to My Watchlist.
- Add Canadian Pacific Railway to My Watchlist.
- Add BHP Billiton to My Watchlist.
- Add AuRico Gold to My Watchlist.
