ASX 200 materials shares, Alumina Limited (ASX: AWC) and Newcrest Mining Ltd (ASX: NCM) both have "depressed share prices that are far below our assessment of fair value and we have added to both on weakness during the last quarter".
That's the assessment of fund manager Allan Gray on these two S&P/ASX 200 Index (ASX: XJO) stalwarts.
The fundie has been buying the dip on these two ASX 200 materials shares over the past quarter.
The team explains why in its latest quarterly report.
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ASX 200 materials shares performed worst in September
In its September 2022 quarterly commentary, Allan Gray said Alumina shares and Newcrest shares were the greatest lags on the performance of its flagship Australia Equity Fund.
The companies are the equity fund's two biggest holdings within the ASX 200 materials sector. They're also the fund's second and third largest positions, each representing 8% of the fund's weighting.
(Fun fact: Woodside Energy Group Ltd (ASX: WDS) is the no. 1 holding at 10% of the fund's weighting.)
Allan Gray holds $176.3 million worth of Newcrest shares. It holds $168.8 million in Alumina shares.
Allan Gray investment specialist, Julian Morrison, explains their view on the ASX 200 materials shares:
During the quarter, our positioning in the Materials sector was the largest detractor from relative performance, with Newcrest Mining the leading negative contributor, followed by Alumina.
Both companies have competitive advantages in terms of long reserve life, and lower cost of production relative to competitors.
Alumina faces some negative market sentiment with regard to surplus industry production currently, but their competitors have much higher cost of production and so face significant short-term losses, while Alumina is better placed in this regard.
Rational curtailment of production by competitors would seem a likely outcome, and in due course Alumina could be a beneficiary of this.
Alumina shares and Newcrest shares dip 30%-plus
Over the September quarter, the Newcrest share price lost 19% of its value. It is down 31% in 2022 so far. Newcrest shares closed up 0.42% at $16.88 on Friday.
The Alumina share price dropped by 14% in the September quarter and is down 35% in 2022. Alumina shares closed 2.83% higher at $1.27 on Friday.
Morrison added:
Today, we believe extreme difference in valuations remain across the sharemarket. Our approach is to position the Fund in our assessment of the most undervalued stocks versus long-term value.
We believe this not only maximises the opportunity for long-term outperformance, but can also help mitigate the risk of permanent loss of capital, which stems from overpaying.
