The past week has seen the share prices of commodity plays Alumina Limited (ASX: AWC), Oil Search Limited (ASX: OSH) and Western Areas Ltd (ASX: WSA) rally to new 52-week highs. In fact, in the case of Oil Search the stock has rallied to a new all-time high.
In each case the momentum behind these three stocks appears to be building and despite returns over the past year of 43%, 16% and 57% respectively, there could be further gains in store for shareholders.
- For Alumina's shareholders significant improvements in efficiency and productivity have led to a marked improvement in earnings. If the Alumina price holds up – the flow on to profits will be significant.
- Oil Search has reached the production milestone on its PNG LNG Project ahead of schedule which has meant analysts have been forced to bring forward their earnings expectations for Oil Search which has in turn had a positive effect on the firm's valuation.
- Western Areas is a nickel miner with operations in Australia, Canada and Finland. With the nickel price zooming around 40% higher over the past six months, it's obviously a good time to have nickel for sale.
Investing in commodity businesses does involve the risk of what an underlying commodity price will do – while the aluminium market appears to still face headwinds, that may not stop earnings improving at Alumina; LNG pricing remains difficult to predict given the significant volumes coming online; some analysts are suggesting that the nickel price can hold at these levels due to a favourable mix of strong demand and weak supply.
