Is this one of the best stocks to buy ahead of any economic recovery?

As stock markets continue to struggle, Sumayya Mansoor wonders if this is one of the best stocks for her to buy to capitalise now!

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I think there are a few stocks to consider buying now that should benefit and provide returns once an economic recovery were to occur. One candidate I want to take a look at is Antofagasta (LSE: ANTO). Should I buy or avoid the shares?

Copper producer

Antofagasta is a Chile-based mining business that is now one of the largest copper producers in the world through its three biggest mines.

So what’s happening with its shares? As I write, they’re trading for 1,293p. They’ve fallen 8% over a 12-month period from 1,412p at this time last year. Since markets began to slump due to soaring inflation and rising interest rates, the shares have fallen 28% from 1,805p in January to current levels.

To buy or not to buy?

I reckon Antofagasta shares have fallen for a couple of reasons, and these are also issues that could continue to cause short-term pain for the business. Geopolitical events, especially in the Middle East region, haven’t helped. Plus, China — one of the world’s largest copper consumers — has been experiencing economic volatility and growth issues (in turn, softening demand for copper). If these issues persist, demand for copper could weaken more so, and Antofagasta shares could continue to slide.

Furthermore, there’s no real end in sight as to when interest rates stop rising and begin to come down. Commodities are intrinsically tied to the wider economy and its state and performance. At present, this is bad news for Antofagasta shares with a weakened outlook and volatile marketplace.

Finally, Antofagasta could experience production or maintenance issues in its mines, too, which could dent performance and sentiment.

On the other side of the coin, Antofagasta could benefit from better economic conditions in the longer term because copper is crucial towards building infrastructure. Furthermore, demand for the metal could be boosted as renewable energy and electric vehicle demand ramps up.

Moving on, Antofagasta’s fundamentals look decent to me. Its share-price drop has thrown up a decent valuation on a price-to-earnings ratio of just nine. Plus, a passive income opportunity with a dividend yield of 3.9% looks good. However, I’m conscious that dividends are never guaranteed.

Finally, Antofagasta’s recent Q3 production report released last month was positive. The business said it managed to increase production by 16% in the quarter. Overall in the year, it has managed to increase output by 4% compared to the previous year. The outlook is encouraging. This could help its shares head upwards, as well as boost performance and payouts.

My verdict

Taking into account the pros and cons, I reckon Antofagasta could see its performance, shares, payouts and sentiment boosted. This is especially the case if any market recovery were to occur.

However, I’ve decided I’m just going to keep a close eye on Antofagasta shares for now. There are lots of external macroeconomic and geopolitical factors at play that are causing too much uncertainty. I reckon there are better stocks to consider buying for my holdings right now. I’ll be taking a closer look at these instead.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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