Car makers aren't the only stocks to benefit from EV demand. Here are 3 long-term picks that play on the materials side.

By Philip van Doorn

The rapid increase in demand for EVs can make suppliers much more profitable

If an investor asks for advice on which stocks or sectors to focus on, his or her own opinions about markets and economics might shed light on opportunities. The expected transition to electric cars provides an example.

The International Energy Agency's Global EV Outlook for 2023 includes this remarkable statement: "A total of 14% of all new cars sold were electric in 2022, upfrom around 9% in 2021 and less than 5% in 2020." The IEA estimates EVs could make up as much as 18% of worldwide car sales this year, while projecting a 35% share in 2030. That last estimate is based on current government policies.

Will those policies will change? Do you believe governments around the world will become more aggressive in their push for a transition to EVs? Or might they pull back?

If you expect the charge toward EVs to continue, one long-term investment focus can be stocks of copper miners.

Sam Peters, a portfolio manager at ClearBridge Investments in New York, summed up the long-term case for copper during an interview: "Every EV has about 200 pounds of copper. Electrifying the grid to charge all these cars overnight is very copper intensive. So you have huge draws on copper and very limited supply."

Peters co-manages the ClearBridge Value Trust and the ClearBridge All Cap Value Fund . He called Freeport McMoRan Inc. (FCX) "the consensus go-to for copper bulls."

"if you assume the EV build-outs that the policy makers want, you would be growing copper demand by three million to five million [metric tons] a year on a 25 million supply base," Peters said. "It is not going to happen. Visible copper inventories can be tracked. They are as low has they have ever been," despite the partial shutdown of China's economy last year, he added.

Peters is also bullish on oil, especially companies involved in offshore drilling and related services.

Backing the long-term case for Copper, Jefferies analyst Christopher LaFemina estimated (using data from Wood Mackenzie, company filings and his firm's own research) that global copper demand will increase at annual rates ranging from 1.9% to 3.7% from 2023 through 2030, while supply will grow at annual rates ranging from 0.7% to 2.7%.

LaFemina's estimates for 2022 through 2030 point to a 21% total increase in demand, with an increase of only 16% for supply. He estimates a supply shortfall of 1.3 million tons in 2030.

You might not have to wait very long

Even though the case for copper is long-term, LaFemina has aggressive 12-month price targets for three copper miners.

He wrote that current share prices for the three copper miners listed below had "priced in" a copper price of $3.86 a pound -- roughly the current level for front-month copper contracts . But based on the companies' average forward price-to-earnings ratios over the past 10 years and an increase in copper to $4.75 a pound, which he called "a bullish but not unrealistic scenario," he set the following price targets, which are in local currencies where the stocks are listed:

Company                      Ticker   Country  May 8 price  Jefferies price target  Implied 12-month upside potential 
Freeport-McMoRan Inc.          FCX    U.S.           36.56                      60                                64% 
First Quantum Minerals Ltd.   CA:FM   Canada         36.24                      40                                10% 
Antofagasta PLC              UK:ANTO  UK             14.70                      22                                50% 
                                                                                                      Source: FactSet 

Click on the tickers for more about each company or index.

Click here for Tomi Kilgore's detailed guide to the wealth of information available for free on the MarketWatch quote page.

Mining stocks tend to be volatile -- this isn't the type of investment to consider if you cannot wait through price swings

-Philip van Doorn

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05-13-23 1016ET

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