Bank of America (NYSE:BAC) discussed in April how the copper supply crisis, which has been predicted to happen for as long as electric vehicles have been in production but never really became a reality, could be ready to pounce, pushing copper prices higher.
“‘The much-discussed lack of mine projects is becoming an increasing issue for copper. This, along with investment in green technologies and a rebound of the global economy, should lift prices to US$10,250/t (465c/lb) by the fourth quarter,’ they say, an upgrade of 8% from their previous view,” MarketWatch reported on April 9.
Of course, copper miners will benefit should this come into play.
However, I’m interested in the non-mining stocks that would benefit from higher copper prices.
Caterpillar (CAT)
Caterpillar (NYSE:CAT) is the world’s largest construction and mining equipment manufacturer. It operates four segments: Construction Industries (37% of revenue), Resource Industries (18%), Energy & Transportation (39%), and Financial Products (6%).
As is often the case with industrial manufacturers’ financial divisions, Caterpillar’s Financial Products division generated $293 million in operating income in Q1 2024, 26% higher than a year earlier and an operating margin of 29.6%, higher than the other three.
While the company’s revenue in the first quarter was $63 million less than a year ago at $15.80 billion, its operating profit was 29% higher year-over-year, to $3.52 billion. That was due to higher operating margins in all four segments.
The one most closely related to copper is its Resource Industries segment, which serves the mining, heavy construction, and quarry and aggregates markets. In the U.S., the segment’s products are produced at Illinois, South Carolina, Texas, and Wisconsin factories. It also has facilities in seven other countries, including China and India.
On pg. 28 of its 2023 10-K, it notes that the age of the fleet of its resource customers remains elevated. In the near term, that means higher maintenance revenue for the existing fleet and higher new equipment purchases as commodity demand strengthens.
Copper producers should play a part in the segment’s revenue growth.
Although analysts don’t particularly like it—only 10 of 26 that cover it rate CAT a Buy—it trades at a reasonable 16.4x its estimated 2024 earnings per share of $21.25.
Finning International (FINGF)
Riding the Caterpillar choice, Finning International (OTCMKTS:FINGF) is the world’s largest Caterpillar dealer, with operations in Western Canada, Chile, Argentina, Bolivia, the U.K. and Ireland.
It operates in three South American countries, where many of the world’s biggest mines are located.
In 2023, South America was the company’s second-largest region by revenue, with 3.22 billion Canadian dollars ($2.36 billion), accounting for 34% overall. Its Product Support revenue accounted for 64% of the region’s sales, followed by the sale of new equipment (32%) and others (4%). Its adjusted EBIT (earnings before interest, taxes, and depreciation) was 12.1% of net revenue, higher than Canada (10.4%) and the U.K. and Ireland (4.9%).
Last year, the company’s revenue grew by 16.2% to 9.54 billion Canadian dollars ($7.00 billion), with Canada accounting for 53% of revenue and 54% of adjusted EBIT.
Over the past five years, CAT stock has appreciated by 191%, 1.9x greater than Finning. Finning trades at just 12.6x its expected earnings in 2024, making it about 23% cheaper than CAT stock.
Sandstorm Gold (SAND)
Sandstorm Gold (NYSE:SAND) is a Vancouver-based company that provides funding to mining companies in return for a share of the revenue from the mining projects undertaken with the money.
Often referred to as royalties, Sandstorm currently has 250 mining projects worldwide, with over 40 generating cash flow and the rest in development. As the name suggests, it focuses on gold— approximately 70% of its revenue is from precious metals, which is expected to grow to over 80% by 202—but copper is a natural byproduct.
So it’s in Sandstorm’s best interest to finance copper projects. To do so, it launched Horizon Copper (CVE:HCU) in 2022.
“Horizon is a premier copper company with interests in three of the largest copper mines in the world. As a growth partner, Sandstorm has the exclusive opportunity to invest alongside Horizon Copper in any future transactions, securing precious metal streams on copper mines,” states Sandstorm’s investor relations page.
By doing this, it keeps its hands on products that should benefit from the energy transition while remaining focused on the gold business and precious metals.
Horizon has a 1.66% NPI (net profits interest) royalty in Antamina, the world’s third-largest copper mine by CuEq (copper equivalent) production.
As copper prices move higher, both Horizon and Sandstorm shareholders will benefit.
On the date of publication, Will Ashworth did not have (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.
