I think there’s a chance to buy stocks today that will pay dividends for years to come. In particular, I’ve got my eye on shares in mining companies.
The two stocks on my radar at the moment are BP (LSE:BP) and Southern Copper (NYSE:SCCO). Both have been falling lately, but at today’s prices, they look attractive to me.
Commodities
Commodities prices have been struggling over the last 12 months. The price of oil has fallen by 33% and copper is down by around 14%.
Normally, falling commodities prices are due to a lack of demand. But according to Jeff Currie, the Head of Commodities Research at Goldman Sachs, this hasn’t been the case.
While demand in the West has been slowing, emerging markets have been more than making up the shortfall. As a result, inventory levels have been declining.
Currie points out that this makes sense if a recession is imminent. But Goldman has the probability of a recession in the US in the next year at around 35%.
If an economic slowdown doesn’t materialise, then inventory levels are likely to be too low to cope with demand. So if there’s no recesssion, prices are likely to rise sharply.
Mindful of this, I’m looking to take advantage. And BP and Southern Copper are two stocks that stand out to me.
BP
When it comes to investing in oil, I’d like to stick to the big companies. And BP stands out to me as the stock offering the best value.
The stock at a price-to-earnings (P/E) ratio of around four. That makes it inexpensive compared to the other oil majors.
| Stock | P/E Ratio |
| BP | 4.15 |
| Chevron | 8.32 |
| ConocoPhillips | 8.11 |
| ExxonMobil | 7.11 |
| Shell | 4.72 |
| TotalEnergies | 7.27 |
The reason for the discount is probably the additional risk. Fossil fuels are a highly politicised issue in the UK in ways, which isn’t something faced by either Chevron or ExxonMobil.
That’s a genuine risk, but the stock looks like a good investment to me. I’d buy it as a passive income investment to take advantage of the potential for oil prices to rise.
Copper
Opportunities to buy shares in copper miners don’t come around often. The reason is simple – most people know the long-term outlook for the metal is pretty good.
Demand stands to benefit from electrification and the move towards renewable energy sources. And the outlook for copper seems clearer than either nickel or lithium.
Its operations are based in Peru and Mexico and its mines have around 50 years of life ahead. Crucially, they also have some of the lowest production costs of any copper miner anywhere.
Again, government intervention is a risk – as shareholders in SQM and Albemarle will know. But with a 6% dividend, I think the stock is a good passive income opportunity right now.
Recession?
I see lower inventory levels as a sign commodities prices are going to rise. The only question is when.
According to Currie, it’s likely to happen soon, because people are overestimating the chances of a recession. Even if he’s wrong, I still see this as a good time to buy mining stocks.
Both BP and Southern Copper offer solid dividends for investors willing to sit and wait. That’s why both are on my list of stocks to buy in June.
