As the world begins effectively to fight back against the COVID-19 pandemic, investors and analysts are expecting a revitalized economy that will put more people back to work and increase demand for the materials used in the construction, electronics and auto industries. In every case, those industries demand varying amounts of components that must be pulled out of the ground.

Analysts at Morgan Stanley recently reviewed copper and aluminum producers based in the western hemisphere, including six U.S.-traded miners. Here’s a look at how Morgan Stanley looks at the entire mining space along with rating price targets on specific companies.

The analysts say they “continue” to favor mining equities because the stocks are “well-positioned to benefit from a still-improvement macro and electrification/green trends.” One thread of that story, of course, is a proposed $3 trillion infrastructure/green tech proposal in the United States. Morgan Stanley’s analysts say mining industry stocks remain “under-owned” and the equities’ “valuation looks attractive,” with the S&P metals and mining index trading about one standard deviation below the historical enterprise value-to-EBITDA multiple relative to the S&P 500.

That said, Morgan Stanley now prefers more exposure to aluminum given the metal’s “more direct link to emissions cuts in China” because the country’s carbon control policies are “likely to have longer-term implications for the aluminum market (which accounts for ~5% of overall carbon emissions in China).”

Compared to copper, aluminum is the current clear winner:

On aluminum, the team expects the 45 [million metric ton] capacity cap to remain in place and coal-fired power costs to rise, leading demand to outpace supply by 2023. On copper, the team sees mine supply growth outpacing strong demand in the next 1-2 years, presenting downside risk to prices in 2022-23. … [M]arket drivers have been almost universally positive through 1Q21, supported primarily by a consumer and manufacturing-led global recovery, speculative inflows, limited supply growth, and disrupted shipping. However, [there are] signs the rally could be nearing its peak: rising rates and a stronger USD could dampen speculative buying, high prices are beginning to impact demand, China’s infrastructure [fixed asset investment] and construction starts are slowly softening on the back of credit tightening, and supply is recovering.

Overall, Morgan Stanley prefers aluminum to copper and sees metallurgical coal as a top pick as demand outside of China picks up. The analysts are bearish on iron ore and nickel, but the demand from EV and electronics makers is keeping demand strong for cobalt and lithium. Yet, after a run of nearly two years, the analysts remain bearish on gold as rising real yields and a stronger dollar add downside pressure on the yellow metal.

BHP

BHP Group PLC (NYSE: BBL), with a market cap approaching $145 billion, is the largest mining company in the world based on market value. The Australia-based firm is an extractor of petroleum, copper, iron ore and coal.

Morgan Stanley cut its rating on the stock from Overweight to Equal Weight. The stock trades at around $56.50, in a 52-week range of $28.90 to $67.03. The consensus price target is $77, implying a potential gain on the shares of around 35%. BHP pays an annual dividend of $3.12 (for a yield of 5.57%).