Against the backdrop of surging commodity prices and demand supporting profits, resource stocks have outperformed the market over the past three months. At the same time, Wall Street continues to favor mining and energy stocks, believing that generous shareholder returns and significant discounts relative to the market provide upward potential for these industry stocks.
JPMorgan analyst Mislav Matejka's latest report points out that the rise in industrial raw material prices in the second half of the year will boost mining companies' earnings per share. Matejka also believes that energy stocks can generate strong cash flows, attractive dividend yields, and can hedge geopolitical risks.
Similarly, Morgan Stanley analyst Martijn Rats and his team maintained their "overweight" rating on the energy sector, noting that the structural outlook for energy companies continues to improve in the coming years. They predict that crude oil supply will tighten under the impetus of peak season demand, and oil prices will trend upwards this summer.
However, prior to this, OPEC+ announced that it would gradually cancel voluntary additional production cuts starting from the end of September, and Brent crude oil broke below $80 per barrel. In addition, the appeal of energy stocks also comes from their substantial shareholder returns; energy giants such as Shell and BP both listed stock buybacks as a key task in their latest quarterly financial reports.
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Analysts expect that European companies are on track to return a record-breaking over €600 billion ($652 billion) to shareholders this year, with energy companies being the main contributors. Analysts also point out that, along with the continued economic recovery, the European energy and raw material sectors, after nearly two years of stagnation, will return to a growth trajectory by 2025.Another team under Morgan Stanley, including analysts such as Alain Gabriel, is more optimistic about European metal and mining stocks. They point out that mining stocks are currently trading at a significant discount relative to historical levels. A stable demand environment and continued tight supply will continue to support commodity prices at a good level. In the past three months, commodities have generally shown a "bull market" style, especially with the prices of base metals such as copper and nickel soaring. Societe Generale strategists Manish Kabra and others believe that at present, compared to the metals themselves, the industry's company stocks are a better choice for sharing the dividends of rising commodity prices. Kabra said that the rise in metal prices indicates that the earnings per share growth of mining companies may have reached an inflection point, and added that his team is more optimistic about mining stocks than energy stocks. Liberum strategist Susana Cruz said that one of the main risks facing commodities at present is the slowdown of the US economy, but she also pointed out that the recovery momentum of the European economy is turning better, which may support demand in the second half of the year.
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