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BHP slashes, and the last thing investors should do now

The waters sure are getting choppy…and I’m not even talking about the budget.

Despite the Dow jumping 123 points overnight, the ASX is down 0.8% on fears of a ‘hard landing’ in China continuing to drag on commodity prices.

It seems, even with the GFC years behind us, that ‘uncertainty’ is only increasing.

So when an urgent news alert hit my email inbox last night, I couldn’t claim to be surprised. It came from The Wall Street Journal

“Andrew Mackenzie said the world’s biggest mining company by market capitalisation would scale back capital expenditure “quite significantly” in the coming years from a peak of more than $22 billion…”

That’s right. BHP Billiton (ASX: BHP) is set to slash spending. And you can bet Rio Tinto (ASX: RIO) and others will to do the same in this continuing trend.

The fall out for the mining services industry is accelerating.

Yesterday I highlighted the shocking profit warning from the once high-flying mining services company Coffey International (ASX: COF).

Today it was the turn of UGL Limited (ASX: UGL) to hit the skids.

Shares in the engineering and mining contractor crashed 15% today after it slashed its full year profit guidance, blaming a slowdown in mining investment as miners wind back their capital expenditure.

JB Hi-Fi, Harvey Norman and others to be crunched by the budget

I was otherwise engaged last night and totally blanked the budget. Did I miss anything?

Seems not, given even The Australian Financial Review said the most controversial measure was the abolishing of the baby bonus.

Give me strength.

Surely the vast majority of people who have a baby do so because they want a baby, not a cash bonus. The only controversy is why it has taken so long to scrap it.

Anyway, someone who is more interested in the budget is my Foolish colleague Mike King…

“Wayne Swan delivered his sixth budget last night, and it wasn’t pretty. From a predicted budget surplus of $1.1 billion, the government is now forecasting a budget deficit of $19.4 billion.”

Highlighting two sectors likely to be impacted by cuts, Mike wrote…

  1. “Retailers like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings (ASX: HVN) will likely be hit by the scrapping of the baby bonus as well as the cancellation of an increase in Family Tax Benefit.
  2. Big miners will be hit by tighter rules around exploration tax deductions, which means miners will only be able to claim a smaller portion of their expenses on tax.”

Analyst Scott Phillips might disagree with Mike on the long-term prospects for Harvey Norman.

But today at least, admittedly on a down-day for the market, investors are siding with Mike, sending Harvey Norman’s shares down 1.75%. I’ll let you know in 18 months time who was right.

What’s an investor to do?

All the doom and gloom might be enough to make you wonder in exasperation…aren’t there any promising opportunities today for retail investors like you and me?

And I’m not the only guy saying so…read on for The Motley Fool’s exclusive interview with Chris Prunty, who was recently named among the world’s top 14 buy-side analysts…

Including what he says is the absolute last thing he’d do right now as an investor.

I think you’ll agree Prunty’s argument is compelling…

An exclusive interview with one of Australia’s — and the world’s! — best buy-side analysts

Ausbil Dexia’s MicroCap fund analyst Chris Prunty, of Sydney, was just named one of the world’s top buy-side analysts by SumZero (a website widely known as the ‘Facebook for hedge funders’).

It’s no wonder…

Prunty has 10 years’ experience in the trenches, analysing ASX companies to find the market’s best opportunities and next big winners. Naturally, we were excited by the opportunity to chat with him this past Monday…

(Even more so when he let us know he’s a Take Stock reader!)

Prunty’s particular focus is on small caps stocks, because, as he puts it: “Large caps in Australia are a very concentrated and highly picked-over market.”

You don’t have to tell us twice! For months, we’ve been calling out the run-up and heady valuations among the ASX’s largest companies…

Of course, Prunty has been watching this run-up closely too, and said that the part that intrigues him most is “the dispersion (that is, massive difference) between the most expensive quartile in the market and the cheapest.”

In plain English: While many large cap blue chips are highly expensive, the cheapest stocks are dirt cheap… Which could spell big opportunity for investors like you and me. But you have to know which companies to buy.

Mining Services and Resources stocks are plain cheap

“Right now, quality small-cap industrials are just as expensive as their large-cap counterparts,” he went on to say, “but mining services and resources are as cheap as they’ve ever been…”

The last thing I’d go and do now is buy the market, or index. Right now, it’s a good environment for stock pickers.”

Be sure to check Fool.com.au this Friday at noon to read the rest of our exclusive interview with Chris Prunty of Ausbil Dexia (including a look at some of his fund’s top holdings)!

As he points out, it’s never been a better time for stock picking. With the cash rate sinking, and savvy observers increasingly wary of blue chips’ soaring valuations…

In the market for high yielding ASX shares? 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!

More reading

Bruce Jackson has an interest in BHP Billiton and Berkshire Hathaway. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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