With many seasoned analysts and financial commentators calling for ASX 6,000, it appears now is the time to position your portfolio for the rising stock prices of the companies who are most likely to push the market higher.
For the S&P/ASX200 Index (ASX: XJO) (INDEX: ^AXJO) to push beyond 6,000 points, it's growing increasingly likely that we'll need the share prices of Woodside Petroleum Limited (ASX: WPL), BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) to perform strongly.
Although every companies' share price has increased around 19% in the past 12 months, they could be primed for higher earnings and share prices in the near future. Here's what you need to know.
Woodside Petroleum
As Australia's largest independent oil and gas company, Woodside has built a rich history for itself through the development of big projects such as North West Shelf (NWS). With the recent withdrawal from the giant Leviathan gas field, off the coast of Israel, management have taken the opportunity to buy back a heap of the company's own shares from substantial shareholder, Shell Energy Holdings Australia. While CEO Peter Coleman hasn't ruled out acquisitions, he says the company still has plenty of growth prospects in emerging oil and gas provinces, such as East Africa, Myanmar and the Porcupine Basin, off the coast of Ireland.
Morningstar analysts' consensus forecasts are tipping the resource giant will pay a 6.2% dividend in the next year. In the current low interest rate environment its possible Woodside could trade higher from today's prices.
BHP Billiton Limited
With a diversified commodity base, moderate debt position, solid dividend yield and market capitalisation over $100 billion, BHP Billiton is, in my opinion, the safest way investors can get exposure to the world's ongoing demand for natural resources. With a focus on coal, copper, petroleum, iron ore and, more recently potash, its future is looking bright. Despite a falling iron ore price, BHP is tipped to grow earnings strongly, reduce debt and decrease capex spend in coming years making the prospect of increased dividends more likely. Trading on a trailing P/E ratio of 15.7, it may seem expensive but long-term investors could realise value from here on.
Rio Tinto
As Australia's biggest iron ore miner, Rio's share price has succumbed to the perils associated with a miner whose earnings are almost entirely dependent upon a single commodity. Although the miner's aluminium and copper divisions could be set to post bigger returns when its reports later this year, Rio has a history of negative surprises and write-offs. No doubt the iron ore price fall will have an effect on Rio's top and bottom lines which is why I'm keen to get my hands on its half-year report (due out on August 7) before buying in.
3 High-risk/HIGH-reward resources stocks
Of the three companies, BHP is the safest exposure to a very volatile industry. While Rio has the potential to surprise the market when it reports next month, I'm adopting a wait-and-see approach for now. However, with over 2,000 companies listed on the ASX, I don't believe investors should focus on just these three giants.
