Despite lingering uncertainty in the metals and mining sector, Morgan Stanley thinks there are some strong value opportunities in the space. Analyst Carlos De Alba upgraded shares of Alcoa , Teck and Nexa to overweight from equal weight, noting he is turning “selectively more positive” on certain mining stocks where they see opportunities for deep value or self-help stories. Alcoa has a strong cash cost curve and capacity cuts to smelting, which is a term use to describe the process of extracting metal from its ore, De Alba said. Nexa was upgraded to overweight due to reaching deep-value territory and “future results vary conservative,” he said. Teck was named a top pick due to forthcoming value expected as the company increases its exposure to copper while also having what they see as a cheap valuation. Cash flow is also likely to rise, the analyst noted, which could prompt higher dividend payments. “We are only selectively upgrading mining stocks, those where we see deep value and/or self-help stories amid persisting macro/China recovery uncertainties,” the note said. De Alba emphasized caution on the sector due to macro uncertainties in China that kept upgrades conservative despite what they see as attractive valuations, strong cash flow generation, capital expenditure declines and low leverage. “Morgan Stanley’s China economist believes a gradual exit from Covid-zero and coordinated intervention in the property sector could result in improving demand only by Spring,” De Alba wrote. “However, Morgan Stanley’s commodities team still sees some more downside to prices before green shoots emerge.” Metal and mining stocks have struggled in recent months as concerns over an economic cooling that could shrink demand for metals worried investors. On Friday, Alcoa shares fell more than 2%, while Tech slid 1%. Nexa shares advanced 1%. — CNBC’s Michael Bloom contributed reporting
© heardonwallstreet.com