Looking to buy an ASX 200 mining stock? Here are 3 reasons to consider South32 shares

This expert sees value in the stock right now.

| More on:
a man in a high visibility vest and hard hat holds a thumbs up at a mine site with heavy equipment in the background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • South32 shares could be worth looking at, according to this expert
  • Katana Asset Management's Romano Sala Tenna reportedly likes the look at the company's valuation and balance sheet
  • The expert also thinks the mining company is capable of undergoing M&A activity

An investor seeking out S&P/ASX 200 Index (ASX: XJO) mining stocks has an abundance to choose from. Perhaps one of the more attractive shares, however, is diversified miner South32 Ltd (ASX: S32).

Katana Asset Management portfolio manager and co-founder Romano Sala Tenna reportedly sees value in the $18 billion ASX 200 mining stock.

The South32 share price last traded at $4.06.

The expert has outlined three reasons why the miner could be a buy in a conversation with the Australian Financial Review. Let's dive in.

3 reasons South32 shares could be worth considering

Valuation

The first thing the expert likes about South32 shares is their valuation.

Sala Tenna said the stock currently trades with a price-to-consensus financial year 2024 earnings ratio (P/E) of around 7 times.

It also boasted an impressive 6.9% dividend yield as of Thursday's close, having paid out 28 cents per share over the last 12 months. That doesn't include the 4.4 cent special dividend paid in October.

Of course, snapping up a stock when it trades at an attractive valuation can increase the potential gains on offer for an investor.

Strong balance sheet

Another reason the expert thinks South32 shares could be worth looking at is the company's "pristine" balance sheet.

The miner ended the first half of financial year 2023 with US$1.56 billion of cash and equivalents and a net debt position of US$298 million.

It also has access to significant liquidity through undrawn credit facilities.

Potential for M&As

That leads into Sala Tenna's final reason to like South32 shares – its potential for growth through mergers and acquisitions (M&As).

And the expert reckons the company's balance sheet leaves it in the position to grow through M&As without issuing more shares. As my Fool colleague Mitchell explains with an incredibly relatable analogy, the more shares in a company on offer, the more its earnings per share (EPS) will be diluted:

Like enjoying a bottle of red among friends… if another glass turns up, that means less red going into yours.

But what might South32 look to buy? Sala Tenna said, as per the publication:

We believe that further acquisitions in the copper space make sense and provide diversification and a push deeper into [electric vehicle] metals.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

A mining employee in a white hard hat cheers with fists pumped as the Hot Chili share price rises higher today
Materials Shares

ASX mining in April 2024: The best stock to buy right now

Analysts at Bell Potter think this mining stock could offer big returns.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Materials Shares

The Core Lithium share is down 27% in March: What's next?

Times have been hard for this lithium miner's shareholders. Will things improve?

Read more »

A female worker in a hard hat smiles in an oil field.
Materials Shares

Why it's a great day to own BHP shares

The Big Australian's shareholders have reason to smile on Thursday.

Read more »

a business man in a suit holds his hand over his eyes as he bows his head in a defeated post suggesting regret and remorse.
Materials Shares

Why did this ASX All Ords stock just crash 36%?

Investors have been hitting the sell button on Tuesday.

Read more »

A miner in a hardhat makes a sale on his tablet in the field.
Materials Shares

Lake Resources share price surges on sustainable lithium news

Lake Resources shares are enjoying a welcome lift today.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Materials Shares

Mineral Resources shares fall despite 'exceptional results'

This mining and mining services company has provided an update on its energy business.

Read more »

A man looking at his laptop and thinking.
Materials Shares

Are Pilbara Minerals shares in the buy zone or overvalued?

Here's what Bell Potter is saying about the lithium giant.

Read more »

Three guys in shirts and ties give the thumbs down.
Materials Shares

3 reasons to sell Core Lithium shares

This lithium miner's decline may not be over according to Goldman Sachs.

Read more »