6 risky shares that have paid off in 2016: Is it time to buy?

Credit: Mark Herpel

Looking at the list of top performing stocks this calendar year was a little shocking to me.

When we exclude micro and small-cap stocks, the list of top performers (those increasing over 50% so far) thins out to only 12 companies. However, this wasn’t the most interesting part.

Top-Performing Sectors

In stark contrast to the performance of the last couple of years, 11 of these 12 companies are mining or mining related. The top six get even more interesting:

1/ Mineral Resources Limited (ASX: MIN) – up 128%

2/ St Barbara Ltd (ASX: SBM) – up 111%

3/ Saracen Mineral Holdings Limited (ASX: SAR) – up 110%

4/ Fortescue Metals Group Limited (ASX: FMG) – up 76%

5/ Northern Star Resources Ltd (ASX: NST) – up 72%

6/ Primary Health Care Limited (ASX: PRY) – up 68%

Of these, St Barbara, Saracen, and Northern Star are involved in gold mining, while Mineral Resources and Fortescue Metals specialise in iron ore (and manganese for Mineral Resources), and Primary provides medical pathology and imaging services.

Time in Invest in Mining Companies?

I wouldn’t go that far just yet…

Interestingly, with the exception of Northern Star, most of the companies above have generated negative returns in each of the last five years and started the year between 5% and 70% lower than where they were five years ago!

This year’s performance has seen analysts from both sides of the debate (to invest in mining or not) speculate if now’s a good time to enter the market. What has to be remembered is that there are a two main factors that are driving the share prices above:

1/ Changes in supply and demand balance

2/ The Australian dollar

In the case of gold, negative interest rates in Europe and Japan, plus lower expectations for interest rates in the US have improved demand for gold as a store of wealth and a hedge against future inflation.

As the ‘gold price’ is denominated in US-dollars, miners with Australian operations (those listed above) have received an outsized improvement in profit in Australian dollars.

Is there still time to buy?

I would only buy gold companies now if I was braver than I am to risk my money, and extremely confident that economic growth around the world would stay subdued for the foreseeable future.

As for the other companies, iron ore is dictated by the whims of Chinese demand, while Primary has simply had an outstanding year following a shocker last year when the government announced potential cuts to funding to private operators.

Perhaps the best opportunity of all lies in Primary as takeover rumours and improved operational performance could see a significant rise in the share price.

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Motley Fool contributor Andrew Mudie owns shares of Fortescue Metals Group Limited. You can find Andrew on Twitter @andrewmudie

The Motley Fool Australia has no position in any of the stocks 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 policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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