News flash!
The price of iron ore is down…
So too is oil…
And gold…
But here's the good news: Stock prices are down too!
Rio Tinto Limited (ASX: RIO), Woodside Petroleum Limited (ASX: WPL) and Senex Energy Ltd (ASX: SXY) have fallen anywhere between 4% and 41% in the past six months. Let's see if they're in the buy zone…
Rio Tinto
As our largest and lowest cost iron ore miner (the commodity accounts for over 90% of group profit), Rio' share price has been able to avoid the truly massive falls in the iron ore spot price throughout 2014. Indeed the steelmaking ingredient is down over 50% to around $US70 per tonne, yet Rio's share price has fallen just 16%.
Although Rio has an estimated break-even cost of around $US43 per tonne, demand from China is tipped to fall heavily, meanwhile huge amounts of supply are coming online. Whilst its Aluminium and Copper divisions provide some diversification moving forward, Rio is probably best left on the watchlist, for now.
Woodside Petroleum & Senex Energy
Investors right around the world are counting down the days to the OPEC (Organisation of the Petroleum Exporting Countries) meeting next Thursday, 27 November 2014. They are hoping the countries support prices and provide relief for producers.
WTI Crude oil currently fetches $US76 per barrel whilst Brent Crude is being traded for $US79 per barrel. However both are down from well over $US100 per barrel in the past six months. Some analysts are forecasting oil prices of $US50 per barrel in the next 18 months!
For Woodside – Australia's largest independent oil and gas company – it has resulted in a 6% sell off of its stock. Currently, that puts it on a forecast dividend yield of 6.8% fully franked. According to my filters, it's the highest grossed-up dividend yield of any ASX stock with a market capitalisation greater than $5 billion. However even at today's prices, investors must be willing to pay 1.8 times book value and with dividends expected to drop off in coming years, investors would be advised to wait for a lower price.
Senex Energy, a mid-tier oil and gas producer in Australia's Cooper Basin, has fallen 41% in the past six months. However Senex is a low cost producer, has a key focus on gas (rather than oil), is sitting on a number of key exploration blocks and has an ambitious plan of ramping up production and 2P reserves until 2018. With no debt, Senex could provide healthy exposure to the sector moving forward, although investors should be conscious of the downside risks of the commodity before buying in.
