The great rout in raw materials prices is over, according to Citigroup analysts, but anyone who hopes to ride the spectacular rebound in mining stocks should think again.
Most commodities have now “stared at a price bottom and are groping for a return to normal,” Ed Morse and other Citi analysts write in a report released Monday.
However, investors should be wary because the huge rally in mining stocks during February and March has already pushed prices far above fundamental values. “We think that the stocks have run too hard, too fast and valuations look stretched,” an accompanying note from the metals and mining team says.
The Citi analysts downgraded three of the world’s largest diversified miners on Monday. They cut Rio Tinto PLC from “neutral” to “sell.” They also reduced Glencore PLC and South32 Ltd. from “buy” to “neutral.”
In addition, the team moved its stance on precious metals from bullish to bearish with a raft of downgrades to many London-listed gold miners, including Acacia Mining PLC and Randgold Resources Ltd.
Most mining companies now offer little in the way of dividends and their earnings display no upward trend, Citi notes. This leaves investors with the difficult problem of how to define value in a sector that has consistently disappointed shareholders over the past four years.
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