Commodity companies can do nothing to change the sometimes-devastating cyclicality of their markets, but that same cyclicality gives investors multiple chances to play the same stocks. Right now there's a great deal of worry about global growth, and particularly growth in markets like China, Brazil and Europe. Although no investor should fool themselves about the risks involved, the fact that Teck Resources (NYSE:TCK) trades near tangible book value ought to be of interest to investors looking for potentially over-punished commodity stocks.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Serving Under-Served Markets
While it's not accurate to say that commodity demand has gone away in developed economies like the U.S. or Western Europe, the fact remains that demand from growing economies like China, India and Brazil has a great deal of influence on commodity prices today.

With its large exposure to metallurgical coal and copper, Teck is uncommonly well-positioned to take advantage of emerging market commodity demand. Many emerging market countries do produce commodities like coal and copper, but as a group they are much less self-sufficient in commodities like met coal and copper concentrate than others like aluminum.

SEE: Investing In Emerging Market Debt

As these markets continue to grow, Teck is looking to grow its production at a fairly rapid clip. The company's six Western Canadian mines already make it the world's second-largest seaborne met coal exporter. While the company's diversified copper asset base (Peru, Canada and Chile) can't match a company like Freeport McMoRan (NYSE:FCX) in terms of efficiency and production costs, it's still competitive on a global basis.

Will the Company Look To M&A Again to Boost Its Profile?
Teck's acquisition of Fording back in 2008 was transformative in many ways, and not all of them good. While the acquisition did make the company a sizable player in met coal, it saddled the Teck with a large amount of debt at almost precisely the wrong time in the cycle. That, in turn, led to some tough quarters and hasty asset sales to shore up the balance sheet.

SEE: 5 Tips For Reading A Balance Sheet Slideshow

Now it's worth wondering if the company is about to go at it again. The markets buzzed a few months ago with the rumor that Teck was considering having a go at Australia's Fortescue Metals (OTCBB:FSUGY). While this would very nearly be a merger of equals, the addition of a growing Australian iron ore producer would certainly fit Teck's pattern of playing into emerging market demand. Moreover, with its relatively geographically-advantaged position in Australia, Teck would have some advantage on large Brazilian miner Vale (NYSE:VALE).

Energy an Unknown
Teck also has substantial potential exposure to the energy market. The company has a 20% interest in the Fort Hill oil sands project (Suncor (NYSE:SU) and Total (NYSE:TOT) each hold about 40% stakes), as well as 50% interest in the Frontier and Equinox projects. The Fort Hill project isn't expected to be on-line for a few years yet, and the Frontier is about another five years behind that (and Teck may well choose to operate the project itself).

Oil sand interest has run hot and cold over the past decade. Although many oil sands projects are economically viable at crude oil prices above $40-$60/barrel, they've become increasingly controversial from the perspective of environmental impact. That said, the world is not going to wean itself from oil in the next decade or two, so these projects could well be significant contributors around the turn of the decade.

SEE: Commodities: Introduction

The Bottom Line
Teck is not an easy stock to buy today. Met coal has underperformed this year (as have major producers like Walter Energy (NYSE:WLT)) as the anticipated steel recovery has largely failed to materialize. At the same time, investors have gotten very skittish about the copper market.

That said, there may be a relative value trade here. Walter Energy, Freeport and Rio Tinto (NYSE:RIO) all trade at substantial premiums to tangible book value, while Teck is basically trading at tangible book. Even if the outlook for industrial metals over the next 12 months isn't great, I don't see why Teck deserves such a substantial discount.

While weak commodity markets would likely delay any sort of catch-up trade in Teck shares, buying quality mining/commodity companies around tangible book works out more often than not.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  3. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  6. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  7. Forex Education

    Top 6 Most Tradable Currency Pairs

    The most frequently traded currency pair is the euro/U.S. dollar. The euro is the base currency in the pairing, while the dollar is the quote currency.
  8. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  9. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  10. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  3. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>

You May Also Like

Trading Center