Resources companies have driven Australia's economy forward in recent years and investors have found some hidden gems along the way. Now, credit is drying up and many investors are focusing on the bigger, established and "safer" resources stocks.
Here are five stocks you need to keep your eye on in 2014 and beyond.
Rio Tinto (ASX: RIO), Fortescue (ASX: FMG) and BHP Billiton (ASX: BHP): In past months Rio's proposed Pilbara 360 expansion project has got resource investors fixated. Along with BHP and Fortescue, the project claims to be able to dig up, transport and deliver iron ore to Chinese ports for under $50 per tonne. The deal breaker for Rio and Fortescue however will be the iron ore price.
Although BHP is also heavily exposed to iron ore markets, it is much more diversified. If the iron ore price crashes, so too will Fortescue and Rio's top lines, although they will survive even at an iron ore price of US$90 per tonne – unlike smaller miners that have higher costs. They both are heavily leveraged to Chinese growth, but if the world's second largest economy continues to demand raw materials like steel, then these two have a considerable upside. Especially with lower costs and increased production.
Senex Energy (ASX: SXY) is another resources stock to have stripped costs from its operations. Senex produces oil and gas from the Cooper/Eromanga basin and is going from strength to strength. It's growing reserves, exploring and producing more oil every year. It has a very healthy cash flow and is well positioned to take advantage of increased demand for energy and a lower AUD will benefit earnings.
Lastly, Santos (ASX: STO) is a company that will boost production in 2014 and beyond. It has a stake in four LNG projects and will grow its annual production to between 80 and 90 million barrels of oil equivalent (mmboe) in the years ahead, up from 50 mmboe currently.
Foolish takeaway
Picking the right companies to take advantage of a booming demand for natural resources can be tough. Having infrastructure in place poses barriers to entry and strong cash flow is especially important. However we've discovered three stocks that are very likely to benefit from increased demand for natural resources!
