Mining services: Opportunities in an unloved sector

Has Mr Market overreacted and thrown the babies out with the bathwater?

Mining services companies are currently unloved by the market and that may be an opportunity for Foolish investors.

The fact that mining services companies are all lumped together and expected to perform similarly is one reason that some may have been thrown out with the bath water. While we’ve seen many fall from grace, such as Boart Longyear (ASX: BLY), Emeco Holdings (ASX: EHL) and MacMahon Holdings (ASX: MAH), all mining services companies are not the same.

After all, mining services covers a wide variety of activities from design and construction of processing plants, to operation and maintenance of plant and equipment, contract mining, electrical services, supply of temporary housing, chemicals and explosives, hire of mining equipment, and analysis of drilling results, to name but a few. They also operate in different industries, with some servicing bulk commodities or gold miners, while others have significant exposure to infrastructure or oil and gas projects, and geographically diverse too. It’s a bit like expecting all retailers to behave the same, but Super Retail Group (ASX: SUL) has shown that’s not the case.

We’ve also seen companies like Monadelphous Group (ASX: MND) and Forge Group Limited (ASX: FGE) announce increased growth for the 2013 financial year. Some companies appear to managing their services much better than others, and the exit of some of the mining services companies may be an opportunity for them to strengthen their market share, or move into new industries.

As the saying goes, the strong get stronger and the poor disappear, and we are likely to witness that in action in the coming years. Companies that are leaders in their markets will survive and prosper, as others fall by the wayside.

The Foolish bottom line

Not all mining services companies are the same, and the sector presents some opportunities for Foolish investors willing to do some research. While Monadelphous and Forge appear headed for record years in 2013, there may be other mining services companies that will grow over the next couple of years, and at current prices are likely to appear extremely cheap.

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Motley Fool writer/analyst Mike King owns shares in Forge. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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