5 resources stocks to buy, hold and sell

The industry is continuing to be the dark horse of 2014, don’t miss your opportunity to bag a bargain.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I’ve said it before, but most blue-chip stocks are overvalued. In fact, there wouldn’t be 20 stocks in the S&P/ASX 200 (ASX: XJO) (^AXJO) which I’d be happy to buy at current prices. Call me picky but I’d rather not lose money.

However, if I did go through and individually identify 20 potential buy ideas I’m guessing a majority of those would come from the resources industry. An industry which I have, until recently, been reluctant to venture into.

Although I’ve had my fair share of success stories in recent times (BC Iron Limited (ASX: BCI) and Liquefied Natural Gas Limited (ASX: LNG) spring to mind) it is high risk and determining what’s value and what’s not isn’t easy. That’s because when it comes to valuation, it’s a completely different kettle of fish.

Industrials like Telstra Corporation Ltd (ASX: TLS) or Woolworths Limited (ASX: WOW) have relatively predictable growth trends, enabling investors to value them with some degree of certainty. Resources stocks have limited or no control over their product pricing, putting their shares at the mercy of volatile commodity prices.

It’s all about supply and demand.

If you can fairly assess the likelihood of a commodity maintaining or increasing in value over the long-term, a well-run resources company with flexible balance sheets shouldn’t be overlooked. There are a number of opportunities in S&P/ASX All Ordinaries Index (ASX: XAO) (^AXAO) available right now. Here are five companies I have identified as either a buy, hold or sell.


If iron ore prices slump in the next two or three years, you don’t want to be caught holding onto shares of smaller mining companies which have large amounts of debt. Arrium Ltd (ASX: ARI) – formally OneSteel – is a company I’m bearish on. Although it says it has a cash cost (remembering cash costs excludes other important costs like royalties, administration, corporate etc.) of around $50 per tonne, the break-even cost is likely to be much higher. I’d rather buy a producer with lower costs and less than 33.8% gearing.


As you can see from the following graph, both BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have outperformed the index’s 12-month return of 8.4% and nearly all of our favourite blue-chip stocks on offer like the banks and supermarket giants. However, BHP’s share price has moved into a range closer to fair value in recent months and perhaps isn’t the bargain it was six months ago. Nevertheless it’s still an exciting and reliable resources stock you should keep your eye on.

Conversely while it could be argued Rio’s share price has significant downside potential, I believe the current price reflects the uncertainty. However if you’re bullish on iron ore, one could also say it represents significant value at current prices.

Rio BHP vs blue-chips 1yr
Source: Google Finance


Currently, I believe both Northern Star Resources Ltd (ASX: NST) and Senex Energy Ltd (ASX: SXY) are buys at current prices. Northern Star has the low cost and balance sheet flexibility to deal with further falls in the gold price whilst Senex is ramping up production of the world’s most sort after commodities: oil and gas. Both are reasonably priced and look set to reward shareholders in the next five years.

Motley Fool Contributor Owen Raszkiewicz owns shares in Liquefied Natural Gas Limited. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »