How do you retire early? Well, taking advantage of the stock market crash is one way. So let’s look at the investment opportunities and risks of getting exposure to mining companies and their shares.
Market crash
First of all, I understand how daunting it is to read stock market news nowadays. Not only are the statistics we see on a daily basis horrible, corporate news is quite grim too. However, after having fallen sharply, stock indexes present plenty of opportunities for investors to buy the cheapest firms. Among them are mining companies, their prices having fallen because the demand for most metals has dropped.
There are plenty of ways for investors in the UK to bet on manufacturing activity recovery. The easiest way to do so is to buy mining companies’ shares listed on the LSE. In my view, the less risky bets would be on large multinational companies. Very good examples of these are Anglo American, BHP Billiton, Rio Tinto and Glencore.
Mining companies and their commodities
All of the firms mentioned above are exposed to industrial metals used in real production. Thus, Anglo American specialises in copper, diamonds, platinum group metals, iron ore, coal, nickel and manganese. Glencore produces copper, cobalt, zinc, nickel and ferroalloys, whereas Rio Tinto specialises in iron ore, aluminium, copper, diamonds and titanium. Finally, BHP Billiton extracts copper, iron ore, coal, nickel and petroleum. Almost all of these materials’ prices are near multi-year lows.
This is because of the manufacturing decline due to the pandemic. Nevertheless, “this too shall pass“. Admittedly, the coronavirus will not be over in just a few weeks and the risks of second and third infection waves are substantial. However, I do not think the pandemic will last several years. So, investors believing that the economic downturn will not last forever might want to consider buying these companies’ shares.
Investment opportunity?
Most importantly, all of these companies are large and sound. They do not have excessive levels of debt, unlike many small-caps. They have been profitable for a number of years and have long dividend records. Their dividend yields are high. Unfortunately, there is a risk that the dividends could be cut for a short time. However, since their shares trade at substantial discounts, buying them for the long term would likely turn out to be profitable.
Moreover, these companies are well-diversified, which means that they do not concentrate on one commodity. So, by buying one of these firms, you make sure that you have exposure to all of the materials this company extracts.
Buying the mining companies’ shares means you can enjoy one of the most important advantages of being exposed to commodities, their limited supply. Moreover, come the economic recovery, demand for industrial metals will rise, thus pushing the prices upwards. This would contribute to your shares’ appreciation as well.
