Over the last week, BMO has put out a set of notes updating their thoughts on the metals and mining sector after they met with investors and several companies reported earnings. BMO reiterates that investors actively interested in the sector are looking for companies who can provide balance sheet protection and discipline, suggesting that the sector is still not “risk on.” Specifically, as the investors continue to have a large-cap bias.

More confirmation of this comes as BMO says that general investor activity throughout the summer “has left us thinking that the market has been content to ‘sit out’ both base and precious metals equities.” They believe investors have continued to price in overall market weakness due to a recession and weak demand.

Though BMO says that in their most recent meetings, they have seen “signs of optimism that we haven’t seen in several months.” Investors are looking at several positive catalysts for gold as they expect a weakening USD and stagflation to be bullish for the precious metal, but note “Optimism still has its limits.”

BMO cites that although investors continue to become more bullish, “it’s early and the market is still risk averse.” As noted above, investors continue to look for sustainable positive cash flow companies in this inflationary environment.

Additionally, BMO believes that companies with no ongoing projects or geopolitical risk are “generally fully valued.” They continue to try and temper investors’ expectations as year-end is usually when companies update the market on their guidance, suggesting that companies who downgrade their guidance will get hit much harder than during previous years.

Lastly, BMO states that during the meetings, M&A was one of the main topics discussed, as “Recently proposed transactions in the metals mining sector have prompted questions about value creation through acquisition.” Investors are starting to believe that not all acquisitions are positive for the industry. This brings a new issue for management teams as they need to explain better how acquisitions will lead to increased profits and returns to the company and investors.

Information for this briefing was found via Edgar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.