Since 1 March, the price of copper has been surging higher. And copper can be a decent leading indicator of the general economic cycle. Indeed, if orders for copper are increasing and causing the price to rise, we may see good economic times ahead. And a new bull market for shares.
I don’t think it’s a coincidence the price of copper began its rise close to the bottom of the coronavirus-induced stock market crash in the spring. Stocks weren’t the only prices to crash because commodity prices did too, including copper. And, as sure as day follows night, economic cycles turn up just after they’ve turned down. So, it makes sense speculators would pile into both stocks and commodities near the bottom in anticipation of their next up-legs.
Fundamentals will drive the new bull market
But I don’t believe speculation alone can carry price movements very far. For a commodity or a stock to sustain its upwards movement over a long time, the underlying fundamentals must drive the price. And copper has been shooting higher in an uptrend for almost eight months. During that time, the price has risen by more than 40%. Indeed, this looks like a solid and sustainable move higher, to me. And there’s no sign of any hesitation in the movement yet, so there could be more to come – perhaps much more.
Things have been so bad for so long both economically and in the markets that I’ve been convinced for some time that we’ll see a decades-long bull run ahead. And I’m not the only bull around. Just yesterday, successful trader and investor Mark Minervini Tweeted: “Based on history, this bull market is in its early stage.” And I think he’s worth listening to because, over the past few years, his market calls have been spot on.
Minervini went on to say: “With the Fed committed to keeping [interest] rates low and aggressively defending the economy, corrections are buyable cyclical events within a secular bull market.” Of course, he’s talking about the stock market in the US. But I wouldn’t underestimate the influence American policies can have on the rest of the world, including the UK. And the UK stock market is notorious for taking its lead from across the ‘pond’.
A copper play I’d invest in today
Meanwhile, FTSE 100 mining company and copper producer Antofagasta (LSE: ANTO) released a production report today. And with the price of copper on the rise, we can expect better profits ahead for the company. Indeed, City analysts have pencilled in a rise in earnings next year more than 50%. At first glance, I think Antofagasta shares look like a good place to be as the new bull market unfolds.
The firm’s production of copper, gold and molybdenum was “in line with expectations” in the third quarter of 2020. And the directors expect steady production ahead in the near term. I reckon if the price of copper maintains its uptrend, we could see some earnings upgrades ahead.
With the share price close to 1,040p, the forward-looking earnings multiple is just below 20 for 2021. I’d buy the stock now and tuck it away for the long haul.
