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Forget iron ore miners! Buy CSL Limited and Flexigroup Limited for growth

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Credit: Thomas Kohler

Iron ore prices have fallen to decade lows…so two major Australian miners are applying to produce even more to sell into a depressed market.

Yes, this is April Fool’s Day. No, this story is not an April Fool’s Day joke.

Fortescue Metals Group Limited (ASX: FMG) and BHP Billiton Limited (ASX: BHP) are seeking approval to develop new mines in the Pilbara, according to The Australian. The two companies want to replace mines that will soon be depleted, but when you do the math, the new mines will have higher production capacities. The extra production seems to add up to a combined amount of 50 million tonnes per year.

That sounds pretty foolish when there is already too much floating around in the world as it is.

Iron ore commodity prices are near US$51 a tonne and are probably not going to stop there. The lowest-cost producers BHP and Rio Tinto Limited (ASX: RIO) can produce more and still have wiggle room to make a profit. However, junior miners don’t have as much margin. Fortescue itself is feverishly trying to lower its production costs, but the highly leveraged company is straining.

A cyclical commodity market doesn’t care about the players. Until increased demand sops up excess supply, prices are heading down. If the miners add to the pile of cheap ore, the companies with the biggest profit margins have the best chances to survive.

Fools don’t need to play that kind of game. They should avoid battlefield industries and follow growing sectors like healthcare and financial services.

CSL Limited (ASX: CSL), the largest ASX-listed biopharmaceutical, has expanding overseas businesses where about 90% of its revenue is generated. It will be the second-largest influenza vaccine producer in the world and analysts forecast annual earnings to grow about 20% on average over the next few years. That’s more attractive than iron ore any day!

FlexiGroup Limited (ASX: FXL) raised its half-year net profit 9% and is forecast to deliver similar earnings growth for the next couple of years. The company offers services like vendor finance, interest free and visa cards, as well as instalment payment plans. Providing for consumer finance is a steady income stream for FlexiGroup. The stock also pays a hefty 4.9% fully franked yield, which is attractive to dividend investors.

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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