Metals and mining stocks have been the worst performers in the FTSE 100 in the year to date because of falling demand and price deflation, and in recent weeks have taken a further hammering by foreign exchange factors.
Then there’s the macro-economic risks relating to Europe and Greece, as well as China’s apparently dysfunctional market.
Despite all that, though, Citigroup today upgraded many of London’s major mining firms because, according to analyst Heath Jansen, the share prices are now ‘overshot’.
“While the macro risks persist, we think the equities have now overshot and as such we move back to a bullish six-month stance from the neutral sector call we made earlier this year,” the analyst said in a note.
“Going forward we expect further downward pressure on bulk commodities, driven by FX and volume driven cost reductions, albeit at a much slower pace.
“In contrast, commodities such as copper could have run its course as both mining, copper mining and refining are characterised by high fixed overhead costs and labour costs, falling grades and the inability to deliver higher production volumes.”
Glencore (LON:GLEN) is upgraded to ‘buy’ from ‘neutral’ , as is BHP Billiton (LON:BLT) and Rio Tinto (LON:RIO).
Anglo American (LON:AAL), meanwhile, is no longer deemed a ‘sell’ and has been upgraded to ‘neutral’.
Elsewhere, in engineering, BAE Systems (LON:BAE) is upgraded to ‘buy’ from ‘hold’ by Berenberg, which claims there is ‘unrecognised upside’ to the current share price particularly from higher activity levels associated with Saudi Arabia contracts.
Jefferies upgraded Premier Oil (LON:PMO) and said the company’s own production guidance (55,000 barrels per day for 2015) may be too conservative.
“Operational momentum seems to be building even while the stock has traded down since our Initiation in May,” said analyst Mark Wilson.
A newly increased 185p price target suggests some 25% upside to the current price of 147p (which is already up 6% today).