Home>Video>2 Stock Picks With Miner Advantages

2 Stock Picks With Miner Advantages

Wed, 23 Apr 2014

Low-cost resources will allow these basic materials names to maintain their profit margins despite a slowdown in China.

+

Video Transcript

The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.

Elizabeth Collins: We're here today to talk about the basic materials sector. In aggregate, our team here at Morningstar thinks that the basic materials universe is fairly valued. Our price/fair value estimate ratio for the entire sector is 0.97, so it's basically fairly valued. That said, there are a lot of discrepancies by industry and by specific companies, and later on in this segment, I'll tell you about our two top picks in this sector.

But first let me set the stage for you with regard to what's going on in the basic materials sector. And the most important thing we're seeing right now for the basic materials sector is our view that China is slowing down its fixed-asset investment. Many commodities, iron ore, copper, for example, have seen a great boom from China building lots and lots of infrastructure over the past decade, and we think that that is simply unsustainable. And as China moves its economy away from fixed-asset investment and infrastructure and more toward household consumption, investment-led commodities, such as iron ore, will suffer whereas commodities that are more tied to consumption, such as oil or precious metals, will do much better.

Two companies that I'd like to talk about are BHP Billiton and Vale. Both of these companies carry narrow economic moat ratings from us because they have sustainable low-cost advantages. For BHP, it's a diversified miner, and it has advantages in iron ore, petroleum, copper, and coal.

Vale's advantages have more to do with iron ore. I mentioned that we're bearish on the outlook for China's demand for commodities, but we think that the market is overlooking both of these companies' low-cost advantages and the fact that long term their profit margins won't suffer as much because they have those low-cost resources.

  1. Related Videos
  2. Related Articles
  3. Comments
  1. The Key Question on Alibaba

    Morningstar's R.J. Hottovy says a key uncertainty ahead of Alibaba's IPO is whether the firm can duplicate its success outside of China .

  2. 3 Key Drivers of U.S. Trade

    Although lagging foreign counterparts, the percentage of exports to U.S. GDP has more than doubled since the 1960s, with several sectors leading the charge.

  3. Chinese Real Estate a Warning Sign for Commodities

    Sluggishness in the country's real estate sector doesn't bode well for the broader commodities market.

  4. Grantham Keynote: Investing in a Slower-Growth World

    The GMO chief strategist highlights the factors behind the market's bullish bias, abnormally high corporate earnings, current valuation levels, a slowdown in productivity, and the great paradigm shift in natural resources.

  5. Finding Value in a Challenging Market Environment

    In this special one-hour presentation, Morningstar experts share their takes on how investors can navigate a world with slightly overvalued stocks, an uncertain interest-rate environment, and a slow-growing economy.

  6. Will Life Sciences Firms Fall Off the Fiscal Cliff?

    Even if the NIH is drastically cut, we don't see a doomsday scenario for these companies, and some of the industry's stronger players are now trading at attractive valuations.

  7. Opportunities in Internet Stocks

    Focused on sustainable competitive advantages and sensitive to valuation, Morningstar StockInvestor's Matt Coffina sees potential in a handful of Internet stocks today.

  8. Build a Moat in Your Portfolio

    Moats are key to sound equity-investing strategies, and Morningstar's Matt Coffina details what to look for and how to leverage a stock's competitive advantages to your benefit.

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.