The UK economy is on a rebound, primarily driven by the high vaccination rates in the country. For investors, this means it’s time to go shopping for undervalued FTSE 100 stocks.
In the current market setup, some companies look quite attractive and have the potential for exponential gains in the short to medium term. However, this does not mean that there aren’t risks associated with these stocks.
The Delta variant of the coronavirus is still causing havoc all across the world. There is also data showing that some of the vaccines in the market may not be very effective against this variant.
If it gets worse and the lockdowns that characterized most of 2020 return, then these stocks could take a hit.
As such, an investor’s primary concern should be whether the chosen FTSE potential growth stocks can overcome this uncertainty and deliver value growth.
FTSE 100 Rebound Stocks
The COVID-19 pandemic put a huge dent in production and severely affected supply chains. Now that the world is turning a corner regarding this pandemic, commodities demand is on the rise.
Companies are ramping up production, mobility is getting back to normal, and governments are putting a lot of effort into helping get economic activity back to normal.
The effect is already being felt in the commodities market, where prices are booming at the moment. Most commodities are now close to their pre-pandemic levels.
The rising commodity prices are already manifesting in the stock markets. In the past week, the majority of the FTSE 100 top gainers were commodity-focused stocks. Stocks like Antofagasta, Nostrum, Tower Resources, Metal Tiger, and Anglo Asian were all top performers through the first week of August.
5 FTSE 100 Stocks to Consider Today:
Antofagasta has been performing very well since the 3rd week of July. The stock has been boosted by copper prices that have been on an uptrend since the last quarter of 2020.
Its current price rally is also driven by the deal it signed with Chinese copper smelters in early July.
The deal that is expected to last for over a year was between this company and many top Chinese smelters, including China copper, Jiangxi Copper, and Tongling Nonferrous.
This deal means that Antofagasta now has a secure revenue stream, a factor that could play into its value for the next couple of quarters.
Besides the rising copper prices and a deal with top Chinese smelters, the technicals also paint a pretty good picture for this stock.
Its recent rally has seen it cross two important resistance levels: the 50-day and the 200-day moving averages.
With the momentum that has gripped commodity stocks at the moment, this stock is uniquely positioned to push through the 100-day moving average resistance at GBP 1608.27.
If it pushes through this resistance, then the upside potential is huge. It could easily retest its May prices of GBP 1900 and above.
The company’s books paint a picture of a fundamentally sound company too. One of the most noticeable aspects of its books is the current ratio.
The company has a current ratio of 3.28. This means it has more than enough assets to cover all its liabilities and remain functional.
This is an important metric due to the high volatility that characterizes the commodities markets.
Without the resources to cover liabilities, a company can easily go bankrupt if commodity prices slump unexpectedly.
The company also has a healthy cash flow of GBP 2.06 billion. This means cash problems are unlikely to affect its operations at any point soon.
A combination of rising commodity prices, a deal with Chinese companies, and a healthy balance sheet make this FTSE 100 stock a good one to include in a portfolio today.
Alongside Antofagasta, Nostrum is a pretty good FTSE 100 share to buy at current price. It has been on a rally for a couple of weeks, and this momentum does not seem to be easing up. On Friday, August 6th, the stock was up by over 16%.
Nostrum’s balance sheet does not look very healthy, but the rising oil prices will keep upside momentum going.
In the near term, oil prices are likely to keep gaining for several fundamental factors. The first one is the rising demand for oil as the world economy opens up again.
With the developed world turning a corner on the COVID-19 pandemic, oil is set to be one of the most in-demand commodities in the market.
Another factor that is likely to keep oil prices high is supply-side challenges. One such challenge is the rising tensions in the Middle East.
Besides the price of oil supporting this stock, the technicals are sending a pretty bullish signal.
The Nostrum stock has made a V-shaped recovery in the last couple of weeks. It has already pushed through the 200-day moving average at GBP 9.94, and it is still gaining.
It is now pretty close to testing the 100-day moving average resistance at GBP 10.50. If it pushes through this level, then it would have lots of upside in the short term.
A combination of rising oil prices and the fact that Nostrum stock has pushed through a major resistance level makes it a good buy at current prices.
Tower Resources has equally good prospects as Nostrum due to rising oil prices. Back in July, the company announced that due to the fast-rising oil prices, interest in its African assets was growing again.
Tower Resources stated that there was a significant increase in activity in its African data room. This is with regards to its offshore oil assets in Namibia and South Africa. This is a pointer to the direction that this stock is likely to take in the short term.
Due to the rising oil prices, the improving fundamentals have seen analysts give this stock a pretty good rating.
The average analyst rating for this stock is 3, which means it’s a stock they are willing to hold. It means they expect it to keep performing well in the foreseeable future.
From a look at its technicals, this stock has some good prospects in the short to medium term.
Its buying volumes have been on the rise for a while now, an indicator that investors expect it to keep performing well in the short term.
The stock was on the rise all through July, and this momentum seems to have accelerated in August. There was a dip on August 5th, but it was quickly bought up, keeping this stock firmly above the 200-day moving average support at GBP 0.3462.
Combining this rising price momentum with the high oil price, there is no doubt that Tower Resources is a stock worth considering.
Another commodities FTSE 100 stock that looks pretty good at current prices is Metal Tiger. This stock has been bullish this month, and on August 6th, closed the day higher by 22%.
This stock is being driven by the rising commodity prices, among them copper and zinc. Due to the full reopening of the economy after the mass vaccinations, commodity prices are likely to remain high for the rest of 2021.
This means the prospects of this stock staying bullish for the rest of the year are quite good. However, the bigger news is that this company is positioning itself to capitalize on this opportunity fully.
In July, the company announced that it had sealed a deal with existing and new investors for an additional AUD $5 million. It intends to use this money to grow its foothold in the Australian market.
Metal Tiger technical indicators are highly bullish too. In the first week of August, the stock has pushed through three major resistance levels, namely the 50, 100, and 200-day moving averages.
This points to a stock gaining upside momentum and a good one to buy at current prices.
Lastly, Anglo Asian has some good prospects. Like the other commodity stocks, it has been bullish for the better of August, driven by the rising prices of the commodities that it explores.
Should You Buy?
All these metrics indicate that commodity stocks are pretty bullish at the moment. However, whether to buy them or not depends on an individual’s risk appetite. One thing one needs to be aware of is that commodity markets are highly volatile, and things can turn at any time.
At the moment, the COVID-19 pandemic is still a factor due to the Delta variant. If this variant forces a large portion of the world to shut down again, then demand for commodities could slump again.
However, these are risks that can be neutralized by having a diversified basket of stocks. This, while allowing for a chance to profit from the upside that these stocks present.
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