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.
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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.
