Wednesday, 2 January 2013

Mining stocks breaking out!

I was looking at the Miners today in the UK and thinking to myself that the New Year would be a good time to take a long position in this sector. After all, it is a cyclical sector that typically performs well over the November to April period, and on top of that the sector performed relatively poorly over 2012 (STOXX Basic Resources sector +4% over 2012 versus STOXX 600 Europe index +14%). 

The chart looks encouraging for the beginning of this year; it looks like a breakout is occurring, flagging potential further gains in the months ahead. 

I have accordingly bought a position in the iShares STOXX Basic Resources sector ETF today (denominated in euros and quoted in Germany). You could of course replicate the main stock holdings yourself in sterling by buying into Rio Tinto, Anglo American and BHP Billiton (the three largest components of the sector). 

It is relatively cheap at a forecast P/E of 12x for 2013e, EV/EBITDA of 6.3x and price/book of 1.3x. More importantly, it is a good play on the resurgence of China - just look at this chart of the Shanghai Composite share index - after a terrible 2011 and 2012, it is rebounding sharply!

With global stock markets rallying to new 12-month highs, it looks as if the post US-fiscal cliff period might be a good one for stocks and shares, led up by cyclical sectors such as Mining, Autos and even Financials. 

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