Recent weeks have seen copper prices skyrocket to all-time highs, setting the commodity up for a potential pullback in the near future. Amidst this surge, mining stocks have been benefitting from the higher commodity prices, with the potential for continued gains in the years to come.
The 21% increase in copper prices since early April, in contrast to a 4% decrease in Brent crude, has led to a profitable trend of buying copper and betting against oil. This trade has been primarily driven by anticipated demand growth for copper, thanks to advancements in artificial intelligence computing, electric vehicles, and the increased use of heat pumps for home heating and cooling.
However, Manish Kabra, head of U.S. Equity and multi-asset strategy at SocGen, cautions that this trade may have reached its peak and advises investors to book profits. Instead, he suggests looking at stocks of companies that stand to benefit from changes in commodity prices, particularly those involved in the “greenflation” trend as the clean energy transition progresses.
Included in SocGen’s greenflation basket are a variety of stocks linked to commodities such as aluminum, iron ore, lithium, and others used in climate technology. These commodities are essential for various technologies, including electric vehicles, solar panels, and wind turbines.
Despite potential fluctuations in commodity prices, SocGen’s report provides confidence to investors looking to construct a greenflation basket of commodity stocks, highlighting the current opportunity to do so. With an average gain of 32% for the selected stocks over the past 12 months, the potential for continued growth in this sector remains significant.
