Mining stocks are poised to soar even as the economy slows in the U.S. and Europe, Jefferies said Tuesday. Analyst Christopher LaFemina upgraded shares of several mining companies including Rio Tinto and Vale to buy from hold, saying in a note to clients that the sector will remain volatile but can benefit from a recovery in China. “Macro risks are still clearly elevated as an economic hurricane could be coming, but we would buy the miners to ride out the storm and maximize leverage to the subsequent recovery,” he wrote. Many of these stocks offer a slew of defensive attributes making them an “implicit baked-in inflation hedge,” according to LaFemina. Some of those characteristics include clean balance sheets, low valuations and high yields. “We believe mining will outperform as the US and Euro economies slow,” he wrote. “Meanwhile, the sector offers ultra-high leverage to a subsequent recovery. The risk/reward tradeoff is compelling, at least on a relative basis, especially if the Chinese economy stabilizes/recovers.” Vale and Rio Tinto have surged more than 32% and 13% this year, respectively, and both stocks have more room to run. Rio Tinto shares offer a potential 22.5% return from Monday’s close price based on Jefferies’ price target of $93 per share, while Vale could add 29.4% based on a target of $24 per share. — CNBC’s Michael Bloom contributed reporting
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