Forget lithium, this is the next hot sector

Credit: iStock

Lithium miners and explorers on the ASX have been on a tear in recent times, with some share prices rising as much as 1200% in the past 12 months.

Galaxy Resources Limited (ASX: GXY) has seen its share price rocket 1,200% in the past 12 months, Orocobre Limited (ASX: ORE) is up a measly 158% and Pilbara Minerals Ltd (ASX: PLS) an easy 378%.

But their best gains might be behind them, and investors might want to look at another sector that surprisingly is hotting up.

Having being pummelled into the earth, the mining services sector may be showing signs of a recovery, and companies in that sector reporting reasonably positive outlooks. Some fund managers have already cottoned on to the potential, but most have yet to rediscover it.

Yesterday I wrote about NRW Holdings Limited (ASX: NWH), which saw its share price explode 45% higher to 58 cents and closed even higher at 61.5 cents – after reporting a much-improved result. NRW’s commentary also said there were ‘signs of stability in resources and infrastructure, with increasing tender opportunities’. Even at current prices, the shares look cheap – trading on a P/E of ~7.7x.

GR Engineering Services Ltd (ASX: GNG) saw its share price jump 15% to $1.63 on August 9, after the resources contractor upgraded its earnings forecasts, as we reported here.

Ausdrill Limited’s (ASX: ASL) share price is up 380% so far this year, and 28% in the past month, after selling a number of non-core businesses and being awarded a contract for additional works on Perseus Mining Limited’s (ASX: PRU) Edikan Gold mine in Ghana. The contract is worth US$120 million in revenues over 42 months.

Austin Engineering Ltd (ASX: ANG) has seen its share price rise 75% in the past month, despite no price-sensitive announcements in that time.

Maca Ltd (ASX: MLD) has seen its share price rise 72% in the past three months, and Paradice Investment Management increased its holding to 7.192% in July.

Heavy engineering group Bradken Limited (ASX: BKN) also recently announced that it expected an improved second half of the 2016 financial year and reconfirm its previous guidance.

The signs appear to be that the worst is behind the sector and the booming gold price, an iron ore price above US$60 a tonne and other commodity prices rising may be adding to the tailwinds.

Foolish takeaway

The average share price gain across 24 of the largest construction and engineering companies on the ASX is 26% in the past month. More gains could be ahead, with many companies trading on low P/Es and even below book value.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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