Long-term investors see value in iron ore stocks
Owen RaszkiewiczJuly 16, 2013
The slump in the price of some of Australia’s best known mining stocks caused by lower prices and expectations of iron ore have led some to believe that now is the time to buy.
Justin Smirk, a senior analyst at Westpac says “it is a longer-term development story unfolding” and believes mining stocks are relatively cheap to buy. Since the New Year, shares in Rio Tinto (ASX: RIO), BHP (ASX: BHP) and Fortescue (ASX: FMG) have dropped 17%, 11% and 25.5% respectively.
Some analysts believe the long-term value could be 20-30 years into the future, when the prices of both iron ore and coking coal return in the next commodities super-cycle. Kelly Teoh, a strategist with IG, says “people are talking about the commodity super-cycle being over, but commodities will always have a place in society because if you look at global population growth, we are reaching unprecedented levels”.
In the past few months, we’ve seen Rio’s Canadian iron ore assets go under the hammer and it’s had a good amount of interest from non-mining suitors. Canada’s two biggest pension funds have shown interest in the $4 billion, 59% stake of Iron Ore Co. of Canada.
Rio’s new CEO, Sam Walsh, has made plans to cut costs by shedding non-core assets in a hope to return to a profit before 2014. So far, assets in the US, Mozambique, France, Australia and Canada have either gone under the hammer already or are still waiting for potential buyers.
The long-term demand for iron ore will continue to grow as the global population reaches levels unprecedented today but as an investor you’ve got to ask yourself what is the best possible price to get some stocks in the resources sector. Goldman Sachs has tipped iron ore to reach $80 per tonne by 2015, meaning that revenues will be much tighter and the good companies will be sort from the bad. Perhaps the short run volatility could present some opportunities to buy i,n but when there are so many other great stocks on the market, perhaps your money could be better spent elsewhere.
The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
- Chinese demand falls as mining exports increase
- Is Rio’s cost cutting good for shareholders?
- Losing faith in resources
Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.
HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!
With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!
The slump in the price of some of Australia?s best known mining stocks caused by lower prices and expectations of iron ore have led some to believe that now is the time to buy.
Justin Smirk, a senior analyst at Westpac says ?it is a longer-term development story unfolding? and believes mining stocks are relatively cheap to buy. Since the New Year, shares in Rio Tinto (ASX: RIO), BHP (ASX: BHP) and Fortescue (ASX: FMG) have dropped 17%, 11% and 25.5% respectively.
Some analysts believe the long-term value could be 20-30 years into the future, when the prices of both iron…