Is China's stimulus at work? 5 metal stocks which can deliver up to 35% returns, as per analysts

China is one of the biggest consumers of metals. Be it copper, aluminum or steel. The moment the news of Evergrande filing for bankruptcy came in, metal stocks fell. But is this something unexpected or the final bad news has come? Given the news flow it appears that finally the Chinese government has decided that let the worst happen and then we will come with a package to give a flip to the real estate sector. One of the reasons why only large companies are in focus could be the fact that with the bumper earnings which these companies have made in the last two years,some of them have reduced their debt.

Recently, China announced measures to prop up its real estate market, once again. Given the fact that China is the biggest guzzler of metal, focus is back on metal stocks. Unlike 2021 and early 2022 when the outlook was bullish across the board because of supply chain bottlenecks. This time around it is not secularly but selectively bullish. It is selected stocks which are getting attention, companies either with large capacity, fully integrated or in any area where they are literally monopolies in some segments.

The biggest aluminum producer in the Middle East said prices for the metal would remain under pressure because of the global economic slowdown.

After the reopening of China, metal prices were expected to inch upward, however the slide continues. Is it because of fears of US recession or over optimism of the covid era is getting adjusted to normal. Stock Reports Plus, powered by Refinitiv, is a comprehensive research report that evaluates five key components of 4,000+ listed stocks - earnings, fundamentals, relative valuation, risk and price momentum to generate standardized scores.

This week, two real estate companies announced that they have sold out their real estate projects. What was worth noting, the overall size of the project, time in which they were sold and the price point at which they were lapped up. Both, real estate prices and stocks of real estate have seen a revival for last three years, if above events are anything to go by than probably, it appears that the demand continues to be strong in some pockets. Given the fact that the operating matrix of the real estate industry is such that debt element will present, it would be worthwhile to stay with large players who have either strong parent group or have track record where they have survived the slowdown without piling on much debt on the balance sheet. Also stay focussed on pockets where income profile of consumer is better.

One immediate impact of what the US federal reserve has done by pausing the interest rates is that some amount of risk on trade will be back on the table. This essentially means that new age companies, IT sector stocks and metals would be in focus. Of all the sectors it is metals which probably have more tailwinds not because of anything else but one simple reason, the Chinese economy getting back on track. If one looks at the reaction of the street to the US Fed announcement, it is the nifty metal index which after a gap up opening has performed better than many other indices in the first half of the trading session.

The focus of analysts is back on metal stocks. Unlike 2021 and early 2022 when the outlook was bullish across the board. This time around it is not secularly bullish. It is selected stocks which are getting attention, companies either with large capacity, fully integrated or in any area where they are literally monopolies. For the purpose of this report, where the average stock report plus score is a minimum of 7. The list is based on upside estimated by the analysts, with the highest potential stock coming on the top of the list.

For the last two years, we all have heard about negative news flow on the Chinese economy. It is not the first or the last time that we have witnessed it. In the past there have been many instances where right from the shadow banking crisis to real estate have bothered the Chinese economy. But if one looks at the long term trend it has all been resolved and they have been able to make a comeback. As an Indian investor, if one has to take exposure to a revival of the Chinese economy in 2024, the only direct play is the metal stocks. The reason, China is a guzzler of metal and when the Chinese economy revives, it would be metal stocks which will outperform. So, investors with the ability to take contrarian investment decisions, it is metals which might be a sector to look at.

Metal sector has been witnessing a mixed news flow, the much anticipated recovery in China is not panning out but there is no immediate pressure on prices. In the case of companies, some of them have utilized the amount they made in the recent boom to reduce the debt. Some of the stocks have been outperforming by not declining in a corrective phase of markets. Stock Reports Plus, powered by Refinitiv, is a comprehensive research report that evaluates five key components of 4,000+ listed stocks - earnings, fundamentals, relative valuation, risk and price momentum to generate standardized scores.