The energy, materials, mining and resources sectors are currently offering investors some great buying opportunities.
For example, companies included in the S&P/ASX200 RESOURCES (INDEXASX: XJR) Index boast on average a price-earnings ratio of 13, whereas the companies in the broader S&P/ASX200 Index (INDEXASX: XJO) have a P/E ratio of 16.4 on average.
For stocks in the energy sector, that number drops even lower, at just 11.59.
Obviously resources companies have ongoing costs not usually associated with their industrial counterparts but that doesn't mean their current low prices are justified.
Earlier this year, I identified three Australian resources companies which I believed traded at excellent prices and stood out as exceptional buying opportunities. I've since rejigged my three top resources stocks because one of those stocks has rallied over 1,000% since I tipped it, while the other two, larger companies, have performed OK.
The biggest one on my list was Santos Ltd (ASX: STO), which is up around 11% in the past six months. Santos shares have traded at a premium to the market for some time as long-term investors eagerly await the huge cash flows and dividends expected to come online from the GLNG and PNG LNG projects.
Today, the company released a good report to the market showing a 25% increase in revenue and a 20 cent dividend with partial franking. Net profit dropped from an impairment at its now exited South Sumatra assets. Despite trading on a quite lofty valuation, compared to its peers, the next 10 years for Santos shareholders and potential investors looks great. Don't buy it (or any stock for that matter) expecting to make a quick buck, buy it for its long-term potential.
The other company I identified is Senex Energy Ltd (ASX: SXY). Senex's share price has drifted 13% lower over the past six months, creating a good long-term buying opportunity. In the past fortnight I took my own advice and bought some shares! (Note: You can see my disclosure below).
Senex is a mid-tier oil and gas producer in Australia's most lucrative onshore basin, the Cooper Basin. Senex has no debt, quality management, is close to infrastructure and is rapidly increasing its level of reserves. Its share price has fallen as a result of lower-than-anticipated pressure at one of its wells, which it announced earlier in the year. However in the June quarter, it reported a 43% increase in production. Its results will be released on August 26.
In addition to buying some Senex shares, I recently bought warrants in Rio Tinto Limited (ASX: RIO). Rio's half-year result was impressive and (finally) gave long-term shareholders a reason to look forward to its full-year report.
The group increased production of a number of key commodities including iron ore, copper and coal. In recent years, Rio's Aluminium and Energy divisions have weighed on earnings and announced huge write-offs. However following a number of divestments, cost-cutting, operational reviews, reduced debt, stabilising commodity prices and increased cash flows, I have reason to believe the worst could be behind it. I'll likely add more shares to my collection in the coming months.
There's money to be made in the resources sector and, as these three companies prove, you don't have to have to go out on a limb to get some exposure. Whilst I think each of these companies present compelling long-term buying opportunities, our top analyst recently identified 3 high-risk/high-reward stocks which could be about to pop. One is already up 100% since he identified it!
