MENU

Why Macquarie Group Ltd just upgraded these 3 mining stocks to a buy

Source: iStock

What does the Australian federal budget and our miners have in common? They have both defied the sceptics and are performing better than anyone dared hoped.

This is despite the share prices of our miners taking a beating today with the broader market tumbling due to a poor overnight lead from Wall Street.

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is sliding 0.7% in lunch time trade but the mining heavy S&P/ASX 200 Materials (Index:^AXMJ) (ASX:XMJ) is copping a bigger beating with the index down 1.1% as heavyweights like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) paced the decline.

But the sell-off is probably an opportunity to pick up some bargains as experts believe that the jitters afflicting equity markets have not changed the outlook for Australian shares.

This is particularly so for mining, a sector that is doing most of the heavy lifting when it comes to earning growth. This of course assumes that a global trade war doesn’t break out and there are signs that trade tensions between the US and China are easing.

If you are wondering where to start your bargain shopping expedition, Macquarie Group Ltd (ASX: MQG) has three suggestions for you after its analysts upgraded its recommendation on some miners following its review on the outlook for commodity prices.

The biggest upgrade in Macquarie’s commodities forecast is for manganese with the broker upping its price assumptions by 13% to 25% over the next five years and increasing its long-term price forecast by 50%!

“The material upgrades in pricing reflect a material improvement in the supply/demand balance thanks to reductions in domestic production in China due to environmental reforms,” said Macquarie.

“The loss of this domestic production capacity is expected to see more high cost seaborne ore in the market in the long term.”

The increase in its outlook for the ore was enough to convince Macquarie to upgrade South32 Ltd (ASX: S32) by two notches to “outperform” from “underperform”.

The broker also upgraded Whitehaven Coal Ltd (ASX: WHC) to “outperform” from “neutral” on the back of its higher coal price forecasts even though New Hope Corporation Limited (ASX: NHC) remains its favoured coal stock.

The third stock to enjoy an upgrade is Orocobre Limited (ASX: ORE) with Macquarie moving its rating on the lithium and potash miner to “outperform” from “neutral”.

But the upgrade was due more to the stock’s underperformance with its share price crashing by nearly 20% since its poorly received half year results.

Hunting for other buy ideas? The experts at the Motley Fool think you should also be looking for opportunities in a niche sector that is tipped to make a big impact on our market.

Click on the link below to get your free report on this sector and to find out what stocks are best placed to outperform in 2018.

Don't Buy A SINGLE Stock Until You Read This

While conflict overseas is all media talking-heads seem to mention these days, the billionaire founder of Tesla is losing sleep over what he sees as a far bigger threat.

Elon Musk Warns: This has "vastly more risk than North Korea"

If you missed your opportunity to get in on Google, Microsoft, or Amazon in their early days, don't let it happen again. This emerging technology trend could offer a second chance for anyone who wishes they took part in these millionaire-maker stocks.

Click here to discover more!

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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.