The Mining Sector
Within the mining sector, there are currently a raft of opportunities – speculative, conservative and pretty much everything in between. As such, in this article I would like to share with you three very alternative opportunities to give you an idea of how trading and investing can be very much tailored to your particular needs. 3 of our top mining stocks picks for today’s market.
The Case for Paladin (PALADIN ENERGY LTD ASX:PDN)
For example, the investor looking at a longer-term play might consider Paladin Energy, a Uranium miner. With interests in South Africa and Australia, Paladin is an interesting opportunity.
A look at the chart will appear quite unpleasant – with the stock being very heavily sold down from a high of almost $6, five years ago to just around the dollar level today. So what went wrong for the stock?
Essentially the earthquake/tsunami, and subsequent crisis at the Fukushima nuclear plant, promoted a major sell off for the Uranium sector globally. This was hardly surprising, especially given the radiation contamination and public opinion. However, Japan has an energy crisis and Nuclear is ultimately the answer as more traditional fossil fuel sourced electricity is less appealing for the natural resource poor country. Add to that the environmental impact of fossil fuels (See carbon tax and previous Paladin articles) and the high price of coal in the market and the case for nuclear energy may well be back on.
According to the World Nuclear Association, there are around 60 new reactors currently under construction (as well as 435 in operation) and of those under construction, 26 are in China!
So at this $1.00 price levels, the stock represents a cheap play into the Uranium space, for those that have a longer-term view and from a fundamental perspective, the case is pretty strong.
The case for Newcrest Mining (NEWCREST MINING LIMITED ASX:NCM)
A couple of weeks ago, I wrote on Newcrest Mining – the Australian miner that has had quite a fall from grace. Fundamentally, the stock has struggled with massive write downs on its acquisition of Lihir’s assets, issues with the regulator over its disclosure obligations to the market and of course being hit hard by rising production costs and a falling gold price.
On a comparison with its peer group of large gold miners, Newcrest’s proven reserves as a valuation point, mean that the stock could be trading at closer to $18.
For the more aggressive trader, the stock has provided an opportunity for trading the bounce – around 20% or so within the month. There may well be something left in this too – looking at the charts with the trading team, $15 doesn’t look out of the question, with $18 a fair value – a bumper potential return!
However, that potential for return comes with a higher level of risk, given the more speculative nature of the trade and recent volatility within the stock. Perhaps a directional options play, to limit the capital at risk could provide a lower “cash at risk” way to gain some exposure, for those that are looking for returns in this fashion.
The case for BHP (BHP BILLITON LIMITED ASX:BHP)
BHP’s production report, this week provides a strong sense that the business is grinding along nicely. One of my other sources this week, went into the shipping tonnages going out of Port Headland – a great indicator by the way – and these also were very solid, in spite of the nervousness in the market around China’s slowing economy.
Looking at these kinds of alternative measures ie iron ore actually being shipped, rather than speculation over the veracity of China’s economic statistics, can often be a better way of making a dollar.
BHP as a business, needs no introduction – being the World’s largest miner. How to tackle it becomes and obvious question. At this point in time, we are in the sweet spot for selling calls for maximum time value, or alternatively, at say a strike out. Selling an at the money call will currently yield around 3.5% in premium, and one strike out – my preferred sweet spot, closer to 4.2% for the next 5 or so weeks.
The purpose of this article hasn’t been to give you simply three tips. You may well take them, and you are most welcome to, but the reality then becomes what after that??
Instead, what I have tried to show through the article is that there are a variety of different ways to tackle the market. Finding what is right for you – the approach that resonates the most, in terms of your own particular needs may be very different from the next person and that is the key to successful trading.
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