Yesterday's results:
- Chinese iron ore spot prices rose 3.2%
- Fortescue Metals Group (ASX: FMG) up 4.22%
- BHP Billiton Limited (ASX: BHP) up 3.72%
- Rio Tinto Limited (ASX: RIO) up 4.1%
The revival (and subsequent pull-back) in the iron ore price in the last six months has resulted in wise market analysts considering if it's time to get back into resources stocks.
The Great Revival
The theory is that after such a period of underperformance, and with a few (apparently) fundamental drivers in place to drive the price of resources like iron ore higher, now could be the perfect time to grab a bargain!
Underperformance
Over a five-year view, our ASX-listed iron ore companies have been smashed by the index, with a circa-70% variation in returns (negative 50% to positive 20%).
Over three years that gap closes and starts to depend largely on the company in question. Rio and Fortescue have 'only' underperformed by 30% and 20% respectively, however BHP's more recent operational problems have seen its performance lag the index by over 50%!
If you're looking for a truly incredible figure however, consider that an investment in Fortescue one year ago would have resulted in a 40% positive return, dwarfing the market's negative 2.5% return.
Time to Jump In!
Not so fast!
The reason why some companies, like Fortescue can beat the market usually relates less to the underlying commodity price and more on operational performance.
Fortescue has managed to deliver one of the most spectacular operational performances of recent memory. Through cost-cutting and performance efficiency, the company's breakeven price has reduced to Rio and BHP-like levels, and a little bit of luck has helped it avoid any Samarco-style disasters.
Can it continue to outperform? My guess is that improvement from here will be much more difficult.
Is it too late to buy ASX mining companies?
I don't think so. However, I'm also not sure if it's the right time to jump in yet either. My research doesn't point to there being another boom in the commodities that matter to our strongest mining companies, and I've learnt my lessons investing in speculative stocks like those in the lithium game.
The best-performing companies on the ASX have been those that can combine dependable, yet not spectacular, earnings growth and a reliable dividend.
