The tailwinds lifting the commodity market will likely trigger a raft of earnings upgrades for the resources sector over the coming weeks or months, but this has not stopped Macquarie Group Ltd (ASX: MQG) from downgrading a number of miners this week.
This is despite the broker tipping the resources sector to keep outperforming in 2018 due to resilience in the current spot prices for metals and energy.
It’s really anyone’s guess if spot prices can stay stronger for longer this year as experts remain divided on the prospects for a correction.
However, the broker notes that even with “some level of pullback” in Chinese demand, it still sees material upside to both its forecasts and consensus earnings estimates.
Despite noting the potential bullish outcome for the sector, Macquarie has taken a more conservative approach and made modest upgrades to its commodity price estimates. This in turn has led to an increase in its price targets of less than 10% for many resources stocks under its coverage.
What this means is that there is plenty of room for further upgrades this year if commodities continue to defy the sceptics.
But this isn’t enough to keep some of the more popular resources stocks on the broker’s “buy list”. Macquarie has downgraded lithium and potash miner Orocobre Limited (ASX: ORE) to “underperform” from “neutral” following its 71% rally over the past 12-months.
Fellow lithium miner Neometals Ltd (ASX: NMT) has also hit with a downgrade with the stock being cut to “neutral” from “outperform” on valuation grounds.
A number of high flying gold stocks suffered a similar fate. Evolution Mining Ltd (ASX: EVN), St Barbara Ltd (ASX: SBM) and Saracen Mineral Holdings Limited (ASX: SAR) were cut to “neutral” from “outperform” by Macquarie.
It may be time to take some profit off the table before the February reporting season.
But this doesn’t quite apply to mining giant BHP Billiton Limited (ASX: BHP), according to Macquarie. It is expecting the miner to announce a surprise capital return when it hands in its results next month.
But before you buy another stock, you should read the free report prepared by the experts at the Motley Fool on another sector that is primed to outperform this year. Click on the link below for more details.
These are high octane, high upside-potential stocks... Stocks that are growing like gangbusters, and have the potential to quickly turn modest initial investments into small fortunes.
Since inception, our Extreme Opportunities service has delivered some moonshot stock picks that have absolutely shattered the market, some have even trebled in value, completely dwarfing the market average.
And now is a perfect time to join in this Black Friday Sale. You can save a whopping 75% off a full 1-year membership.
Returns as of 27th November
Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Macquarie Group Limited, Rio Tinto Ltd., and South32 Ltd. 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.
- Is it too late to buy the surging Bega (ASX:BGA) share price? – November 27, 2020 3:57pm
- This expert thinks the oil price could surge to US$196 a barrel in 2021 – November 27, 2020 11:52am
- The real earnings growth driver for ASX bank stocks in FY21 isn’t what you think – November 26, 2020 9:39am