Hi Debbie,
Two interesting stocks here that have both participated in the recent resources bull run.
IGO Ltd (IGO): Nickel is still part of the story here, but IGO’s earnings and valuation are now far more leveraged to lithium prices and lithium project execution than nickel. It’s the renaissance of lithium that’s driven IGO up more than 3-fold from its April lows.
- We see further from upside for IGO with $10 within site over the medium term, but in the short term, we are cautious of the hot money that has now entered the sector – a pullback/consolidation after a strong advance is our preferred short term scenario.
Alcoa Corp (AAI): similar to IGO we see further upside from AAI in the medium term, but it looks stretched in the short term, much like many of the resource stocks. Aluminium is benefiting from being the “lightweight electrification metal” — demand is rising because it’s essential for EVs + grids + renewables, while recycling makes it one of the most attractive industrial metals in a decarbonising world.
- We can see AAI trading above $100 over time, but we are conscious that commodities generally have been pushed sharply higher, in a short amount of time.
Always remember that commodities are very volatile, and many in the market tend to get very bullish after they’ve run hard. ETFs will also amplify the moves, as momentum money piles into ETFs without any respect for valuations, often pushing stocks to extremes – much like we saw with the likes of CBA last year. This creates greater risks of sharp corrections along the way, which is why we often write about risk/reward looking more attractive into pullbacks.
