5 copper stocks to play the housing recovery
Investors should have many opportunities to take advantage of the promised rebound, particularly with this metal.
Measured by the S&P/Case-Shiller Home Price Index, home prices jumped 6.8% year-over-year last December to close out 2012 with a strong gain. Nationally, the index is now back to the levels of summer 2003. Perhaps more importantly, new home construction continues to improve as well.
The data is certainly promising as the housing market has finally picked up steam over the last year; however, it still has a long way to go before it reaches its peaks racked up just before the crash. This means investors may have plenty of opportunities to play its rebound.
The red metal play
One of the best opportunities could be in base metal copper. The red metal is found in variety of housing-related industrial applications including use in plumbing, electrical wiring and heating, ventilation, and air-conditioning (HVAC) systems. According to the Copper Development Association, there are approximately 195 pounds of copper electrical wire in the average new home constructed.
Overall, home and office building construction uses approximately 40% of all the copper in the U.S., with residential construction comprising two-thirds of the demand. These amounts do not even factor in the amount of copper wiring that goes into various home appliances and other household products.
A rebound in housing could be a tremendous catalyst for the price of copper and various producers of the metal. Below, we outline several options to help you make a play on this industrial metal.
Offering one of the highest dividends in the mining industry -- at 2.6% -- Southern Copper (SCCO) could be a great starting point for investors. Operating across Peru, Mexico, and Chile, the firm is an integrated producer of metal -- engaging in mining, smelting and refining copper ore. This provides it economies of scale and one of the lowest costs of production in the business. Additionally, Southern Cooper has seen growing production as well as increased ore grades from its mine.
Considering that the average US home has about 200 pounds of copper wire running through its walls, Encore Wire (WIRE) could be one of the best ways to play the commodity. The company manufactures electrical building wires and cables for use in interior electrical wiring applications in commercial and industrial buildings, homes, apartments and manufactured housings. That makes WIRE the go-to play in the sector.
As the owner and operator of the second largest open pit copper-molybdenum mine in Canada, Taseko Mines (TGB) could be a buy-out target as the larger resource players need to increase their mine supplies. Junior natural resource companies serves as one of main providers of new mineral deposits. These companies find new deposits and bring them into production. Featuring a small market-cap and big reserves, Taseko could be exactly what a larger producer is looking for when it comes to increases its own reserves in the face of rising copper demand.
Freeport-McMoRan Copper & Gold
Even though it's branching out into other areas of commodity space – like energy production – Freeport-McMoRan Copper & Gold (FCX) is still one of the largest producers of the metal on the planet; in fact, it's the largest publically traded one. The company's Grasberg mining complex in Indonesia is the world's largest copper and gold mine in terms of recoverable reserves. FCX produced 1.44 million metric tons of refined copper in 2010, equal to 9% of the world total. That makes it a prime play on housing continued recovery.
Global X Copper Miners ETF
For those investors who can't decide on just one copper firm, the Global X Copper Miners ETF (COPX) could be for you. The ETF tracks 31 different global copper miners and uses an indexing methodology that only includes "pure" copper miners. Other ETFs tracking the sector weight their indexes by revenue associated with copper and may not offer completely pure exposure. That makes COPX one of the best broad plays around. Already, the ETF has seen gains as housing has once again started to move.
Editor's note: This article by Aaron Levitt was originally published on Commodity HQ.
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These ETFs are benchmarked to extremely out-of-favor foreign markets that most investors would quickly pass over. Whoever said being a contrarian was easy?
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