When the global shift towards clean energy and decarbonization is in focus, the winners are not just green energy companies. There are other ways to benefit from positive industry tailwinds that’s likely to last beyond this decade. This column focuses on the top metal stocks to buy that are producers of critical minerals required in the adoption of green energy.
As an example, the demand for copper will nearly double by 2035 on the back of energy transition. Mining companies will be challenged to meet the demand. Similarly, an acute supply gap is being estimated for lithium by 2035. Other metals that are likely to benefit from the green energy boom includes cobalt and nickel.
For returns, commodities are one of the most undervalued asset classes. With impending demand for some critical miners, one may expect a big bull market for several industrial commodities. Let’s discuss three metal stocks to buy for multibagger returns by 2030.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) is among the best lithium stocks to buy for multibagger returns by 2030. The plunge in lithium prices provides a good opportunity to accumulate ALB, which looks attractive at a forward price-earnings (P/E) ratio of 20.8. Also, the stock offers a dividend yield of 1.2%.
Global demand for lithium batteries is expected to surge more than five-folds by 2030. Further, lithium supply gap is expected to be acute by 2035. These estimates point to a strong reversal for lithium in the coming years.
Earlier this week, Albemarle announced a public offering of $1.75 billion of depositary shares. The proceeds will be used for funding growth capital expenditures. The stock reacted on the downside on this news. However, Albemarle is positioned for aggressive capital investments and earnings growth once lithium recovers. Not seeing dilution as a concern, investors focus on the guidance for 20% CAGR in terms of lithium sales volume through 2027.
Freeport-McMoRan (FCX)
Freeport-McMoRan (NYSE:FCX) has remained sideways in the last 12 months, which may pose a good opportunity to accumulate the stock. It looks attractively valued at a forward P/E ratio of 23.7.
It’s worth noting that by 2040 mineral demand (by weight) towards decarbonization will be dominated by graphite, copper, and nickel. As one of the largest producers of copper, Freeport-McMoRan is well positioned to benefit.
For 2023, the company reported adjusted EBITDA and operating cash flow of $8.8 billion and $5.3 billion, respectively. With strong fundamentals and brownfield growth potential, I expect operating and free cash flows to swell. This will translate into higher dividends besides giving the company flexibility for potential acquisition driven growth. Additionally, Freeport ended 2023 with cash and equivalents of $4.8 billion.
Another noteworthy point is that Freeport reported gold production of two million ounces for 2023. With the precious metal trading above $2,100 an ounce, cash flow upside is likely to be supported.
Rio Tinto (RIO)
Several reasons support a bullish view on Rio Tinto (NYSE:RIO). First, RIO trades at a forward P/E ratio of 7.2. So, the stock is grossly undervalued and provides an attractive dividend yield of 8%.
Also, Rio Tinto is identified as a leading player in the iron ore business. Without doubt, the business remains the cash cow for the company. Even with some weakness in commodities, Rio Tinto reported revenue and EBITDA of $54 billion and $23.9 billion for 2023.
Further, RIO reported free cash flow of $7.7 billion after an aggressive capital investment of $7.1 billion. Clearly, the company has high financial flexibility to make big investments.
Importantly, Rio Tinto focuses on diversification towards metals that will support global decarbonization. These includes copper, aluminum, and nickel. In the next five years, Rio Tinto is likely to be more diversified in terms of revenue with the decarbonization theme on the forefront.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
