China announced several measures, including lowering the amount of cash that banks must have in reserve, to resurrect its housing market and the broader economy this week.
According to Carlos De Alba – a Morgan Stanley analyst, metals and mining stocks will likely benefit from increased demand once the largest Asian economy hops back on track for growth.
Here are the top three commodities stocks that he expects will particularly benefit from the economic stimulus that China announced recently.
United States Steel Corporation (NYSE: X)
US Steel has been a laggard since the start of this year but the China stimulus could serve as the much-needed catalyst for its share price in the months ahead, as per the Morgan Stanley analyst.
Much of the recent weakness in shares of the integrated steel producer has been related to uncertainty over its $15 billion deal with Japan’s Nippon Steel.
But the investors’ focus may begin to shift after Beijing’s stimulus announcement since China is currently the world’s largest consumer of steel. As its economy starts to recover, demand for steel will likely increase for construction, manufacturing, and infrastructure projects.
A 0.55% dividend yield makes US Steel stock all the more exciting to own at writing.
Freeport-McMoRan Inc (NYSE: FCX)
Freeport-McMoRan will further extend its year-to-date gains now that China is “taking deflation seriously”, Carlos De Alba told clients in a research note today.
China is the world’s largest consumer of copper. Therefore, the prospect that its economy may recover in the coming months bodes well for FCX as it’s among the world’s largest copper producers.
Morgan Stanley cited the Grasberg mine agreement with Indonesia on which Freeport-McMoRan Inc secured an extension in May for its bullish view on the New York listed firm.
Carlos De Alba sees upside in Freeport-McMoRan shares to $58 that indicates potential for another 13% gain from here.
Vale SA (NYSE: VALE)
Morgan Stanley also expects Vale to be a potential winner after China moved to boost confidence and rejuvenate its struggling economy.
Beijing’s recovery could significantly increase demand for iron ore that Vale SA is one of the world’s largest producers of.
In July, Vale said its net profit roughly tripled in its fiscal second quarter and China could contribute to its future growth as it drives more demand for nickel as well.
Note that Vale stock currently pays a dividend yield of a rather lucrative 11.64% that makes it a must-own after China’s recently announced economic stimulus.
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