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Teck Resources Ltd. posted quarterly profits Thursday that were above analyst expectations. The company's stock relative to commodity prices suggests that significant upside remains for investors.

Teck is the largest company in the S&P/TSX Diversified Metals Index and a bellwether for the sector. Thursday's profit results – five cents ahead of expectations at $0.43 per share – are an optimistic sign that mining stock prices may be on the mend.

Teck Resources vs commodity benchmark

SOURCE: Scott Barlow/Bloomberg

The chart above shows that Teck’s stock price remains undervalued relative to the prices for commodities they provide. The commodity benchmark in this case mirrors the breakdown of Teck’s revenues for the most recent quarter – 46.6 per cent coal, 32.2 per cent copper and 21.1 per cent zinc. Current commodity prices suggest that Teck should be trading in the $35 dollar range.

The abysmal sentiment in the mining sector is the likely explanation for why Teck is lagging the relevant commodity prices. Rising global copper production is expected to choke the market with excess supply in 2014 and China is attempting to cut down its coal consumption for both power and steel production.

Still, Teck’s value relative to commodities should provide some comfort to shareholders. At the very least, it provides a cushion against further declines. Ideally, sentiment will continue to improve and the stock will move sharply higher to reflect global resource markets.

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