Mining monolith BHP Group’s (NYSE:BHP) proposed mega deal for fellow mining giant Anglo American (LSE:AAL) is bullish for metals and mining ETFs like the SPDR S&P Metals & Mining ETF (NYSEARCA:XME), the iShares MSCI Global Metals & Mining Producers ETF (BATS:PICK), and the Global X Copper Miners ETF (NYSEARCA:COPX).
The $38.8 billion bid, which Anglo American rejected, represented a significant premium to where the stock was trading. The move would be the largest deal ever in the mining space, and it’s a bullish indicator for the mining space as a whole.
Here’s why: the deal shows that the shares of miners like Anglo American with desirable assets are likely undervalued. It also shows that companies are eager to add supply capacity amid surging demand, and it is likely easier and cheaper to buy competitors to add this capacity than it is to build new mines.
Bloomberg reported, “BHP’s mega-bid for Anglo American Plc this week highlights that many miners would prefer to buy rivals than pull the trigger on entirely new projects.”
BMO Capital Markets director for commodities research Colin Hamilton told Bloomberg that the deal “…tells you that building stuff is just too expensive… Everyone was expecting that the supply pipeline would have reacted to higher prices by now, and it just hasn’t.”
Meanwhile, metals like gold, copper, and others are surging in 2024. Gold recently hit an all-time high, while copper just broke through the $10,000 level for the first time since 2022.
This environment makes it a favorable time to own metals and mining stocks, and ETFs like XME, PICK, and COPX give investors exposure to the space as a whole. I’m bullish on these ETFs based on the attractive exposure they give investors to the mining sector while commodities prices are rising and deal activity is heating up.
SPDR S&P Metals & Mining ETF (NYSEARCA:XME)
With a market cap of $2.0 billion, XME is the largest and most popular metals and mining ETF.
According to the fund, XME “seeks to provide exposure to the metals & mining segment of the S&P TMI (Total Market Index), which comprises the following sub-industries: Aluminum, Coal & Consumable Fuels, Copper, Diversified Metals & Mining, Gold, Precious Metals & Minerals, Silver, and Steel.”
As you can see, XME gives investors exposure to a wide variety of metals and mining stocks, ranging from those that mine for precious metals like gold and silver to those that mine for industrial and base metals.
XME owns 33 stocks, and its top 10 holdings account for just under half of its assets. Below, you’ll find an overview of XME’s top 10 holdings using TipRanks’ holdings tool.
XME’s wide-reaching approach is illustrated by its top two holdings. Newmont Mining (NYSE:NEM) is a major gold producer with the world’s largest gold reserves, while Freeport-McMoRan (NYSE:FCX) is currently the world’s largest producer of copper, so the fund gives investors a nice mix of exposure to precious metals like gold and industrial metals like copper.
XME even gives investors exposure to more obscure parts of the mining sector, like rare earth metals and uranium, with holdings like MP Materials (NYSE:MP) and Uranium Energy (NYSEMKT:UEC). XME charges a reasonable expense ratio of 0.35% and pays a small dividend, currently yielding 0.9%.
As we’ll discuss below, XME isn’t quite as diversified as PICK in terms of the number of stocks it holds. Also, because it is limited to investing in the mining sector of the S&P Total Market Index, it doesn’t give investors exposure to non-U.S. mining giants like the aforementioned BHP or Anglo American.
However, I’m still bullish on XME based on its diversified exposure to a wide range of precious and non-precious metals at a time when they look attractive both in the short- and long term.
Is XME Stock a Buy, According to Analysts?
Turning to Wall Street, XME earns a Moderate Buy consensus rating based on 20 Buys, 13 Holds, and one Sell rating assigned in the past three months. The average XME stock price target of $71.52 implies 20.6% upside potential.
iShares MSCI Global Metals & Mining Producers ETF (BATS:PICK)
PICK is slightly smaller than XME, with $1.2 billion in AUM. According to iShares, PICK “seeks to track the investment results of an index composed of global equities of companies primarily engaged in mining, extraction or production of diversified metals, excluding gold and silver.”
PICK gives investors “exposure to companies that are involved in the extraction and production of diversified metals, aluminum, steel, and precious metals and minerals.”
There are two key differences between PICK and XME. First, while XME invests in precious metals stocks, PICK foregoes them. Secondly, while XME is limited to the U.S., PICK invests globally, so you’ll find international mining giants like BHP, Anglo American, and Vale SA (NYSE:VALE) among its holdings, which you won’t find in XME.
PICK owns more stocks than XME, with 256 holdings, but it features a similar level of concentration, as its top 10 holdings account for 50.2% of its assets. You’ll find an overview of PICK’s top 10 holdings below.
As you can see, PICK gives investors exposure to some of the international mining behemoths, such as BHP Group, Rio Tinto (NYSE:RIO), Glencore (OTC:GLCNF), Anglo American, and Vale, which are not present in XME.
Moving on, PICK has a similar expense ratio to XME, charging a marginally higher 0.39%, and it features an attractive dividend yield of 4.3%, which is significantly higher than XME’s.
Overall, I am bullish on PICK based on the access it gives investors to a diversified group of mining stocks from around the world and its attractive dividend yield.
Is PICK Stock a Buy, According to Analysts?
PICK earns a Moderate Buy consensus rating based on 63 Buys, 190 Holds, and four Sell ratings assigned in the past three months. The average PICK stock price target of $46.26 implies 9.1% upside potential.
Global X Copper Miners ETF (NYSEARCA:COPX)
The last of these three ETFs is COPX, which is a bit different than the two above as it is a pure play on copper miners, so you won’t find stocks involved in precious metals like gold or other base metals here.
However, copper looks particularly attractive and appears to be one of the key drivers behind BHP’s proposal to acquire Anglo American, as the deal would have made it the largest copper producer in the world.
Copper prices have recently surged to a two-year high of over $10,000 per ounce based on demand from rising industrial activity amid persistent supply constraints. Plus, copper also looks attractive over the long term based on demand from end markets like renewable energy, electric vehicles, data centers, the power grid, and more.
COPX is actually larger than the more diversified XME and PICK, as it has $2.1 billion in assets under management.
The fund holds 37 stocks, and its top 10 holdings make up 51.4% of assets. Below, you’ll find an overview of COPX’s top 10 holdings from TipRanks’ holdings tool.
As you can see, COPX doesn’t invest in any of the diversified mining giants like PICK does and instead focuses on pure-play copper companies like Ivanhoe Mines (TSE:IVN) and Lundin Mining (TSE:LUN).
One item to note here is that COPX is more expensive than the two ETFs above, with an expense ratio of 0.65%. COPX pays a dividend and yields 2%.
While copper is much more narrowly focused than XME and PICK, I am bullish on this ETF based on the undiluted exposure it gives investors to copper, a metal that looks particularly attractive both in the short- and long term for the reasons discussed above.
Is COPX Stock a Buy, According to Analysts?
Analysts give COPX a Moderate Buy consensus rating based on 23 Buys, 13 Holds, and two Sell ratings assigned in the past three months. The average COPX stock price target of $50.07 implies 9.9% upside potential.
The Takeaway
In conclusion, I am bullish on all three of these major metals and mining ETFs. BHP’s proposed acquisition of Anglo American highlights the inherent value in the space and shows that it is likely easier and cheaper to acquire existing assets than to build new mines, which is bullish for the mining stocks with these assets. Gold, copper, and other metals are all racing to new highs amid increasing demand and constrained supply, and they continue to look attractive over the long term.
I like the diversified exposure to precious metals and base metals that XME offers. Meanwhile, I’m constructive on PICK based on its exposure to a diverse mix of global mining leaders and its attractive dividend yield. Lastly, I’m bullish on COPX based on the exposure it provides to copper, which looks especially attractive.
