When a quality company with excellent long-term prospects is having some short-term issues, it's a time to buy.
Shaw and Partners portfolio manager James Gerrish, in his Market Matters newsletter, identified exactly such an ASX stock this week.
"We've been flagging diversified metals and mining company South32 Ltd (ASX: S32) for a number of weeks, following their weaker-than-expected quarterly production update in April."
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Short-term wobbles, long-term strength
Indeed the South32 share price tumbled 9% in just a few hours on 24 April after it downgraded guidance.
Production fell across the board in the March quarter after unfavourable weather impacted some of its operations.
The stock for the metals miner has fallen almost 8% over the past 12 months.
Gerrish's team isn't letting that impact its longer-term view of the mining sector.
"Recession fears are building, which is putting pressure on the miners," he said.
"We like the stock, and the pieces of the puzzle are starting to come together for us to increase our exposure to resources, a plan we've held for months but have remained patient to date."
Arguably the best feature about South32 shares is the 8% dividend yield, which is fully franked.
Gerrish's Shaw and Partners colleague Jed Richards agreed with his bullishness.
"The recent share price retreat represents a buying opportunity, as South32 offers an appealing mix of raw material and base metal exposures," Richards told The Bull.
"China re-opening its economy should boost commodity prices."
This is when you pounce
Gerrish predicted that the dividend yield would remain solid in the coming period.
"South32 currently trades on an estimated PE of 9.5x for 2023, plus it's also forecast to yield more than 5% over the next 12 months," he said.
"In our opinion, S32 gives an excellent diversified resources exposure without the huge exposure to iron ore which comes with both BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO)."
The team at Market Matters would buy up South32 shares as soon as it hits a particular sweet spot.
"We are looking to accumulate South32 into any weakness under $4."
The South32 share price closed Friday at $4.02.
