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

Growing stocks like CSL Limited (ASX:CSL) and FlexiGroup Limited (ASX:FXL) are much better picks than troubled iron ore miners.

| More on:
a woman

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

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.

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.

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 »

Two people in suits arm wrestle on a black and white chess board.
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 »

⏸️ 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 »