Following several months of mining and mining services companies? prospects souring, it?s probably time to start going through related stocks to see where they stand. Are they in the bargain bin or damaged goods sales section? Or are there some that are performing as good as can be expected, but are being neglected because of guilt by association?
Two companies I like based on past performance and growth are Cardno (ASX: CDD) and Maca (ASX: MLD).
Cardno is an infrastructure and environmental services company which has about 53% of its total revenue from the US and about 40% from Australia and New…
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Following several months of mining and mining services companies’ prospects souring, it’s probably time to start going through related stocks to see where they stand. Are they in the bargain bin or damaged goods sales section? Or are there some that are performing as good as can be expected, but are being neglected because of guilt by association?
Cardno is an infrastructure and environmental services company which has about 53% of its total revenue from the US and about 40% from Australia and New Zealand. With that amount of diversification, it won’t be as susceptible to the domestic mining downturn as others like Monadelphous (ASX: MND), which has a strong majority of its work in Australia.
As many mining services companies are down in share price, Cardno also trailed down from its August 2012 high of $8.64, until it found a bottom around $5 in June. Since then, it has rebounded to $6.77.
The 2014 outlook for the American businesses is cautiously optimistic, yet the US housing market recovery and the improving economic conditions bode well for social and industrial infrastructure expansion. State and municipal markets are improving, whereas national is expected to be flat. South American operations are still providing growth opportunities.
Mining and civil construction company Maca Limited has a majority of its business, 84% in 2013, in mining services, but a number of its contracts are for processing production, for example, ore crushing for Atlas Iron (ASX: AGO). This kind of work is increasing because the iron ore miners like Atlas are ramping up production to take advantage of higher iron ore prices of late.
Mining services for exploration and greenfield development are the kinds of project work that are being cut back by the miners to manage cost. But production is going strong, and that is possibly why Maca hasn’t taken a big hit in share price. Between March and July this year, its share price fell from about $3 to around $1.70. Since then the price has worked its way back up to yesterday’s close of $2.60. Not a perfect straight-up pattern, but definitely better recently than others like WorleyParsons (ASX: WOR), which gapped down from about $22 a share to about $16 on news of downwardly adjusted earnings guidance. It has slightly recovered to $16.79.
Knowing an industry and its peers is just as important as knowing a company itself. If the market conditions are about the same for all, then investors want to home in on the stocks that aren’t reporting as much bad news as the others. It’s an economic “survival of the fittest”, and those that thrive through growth and adaptation come out as winners. Before painting all related stocks with the same brush, make sure you know a business well enough to spot some differences. Mr Market buys and sells sometimes at premiums and sometimes at discounts. Buy at the discounts and sell at the premiums.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.