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A mix of blue chips and underperformers Posted: Tue, 13 Jan 2009 [miningmx.com] -- Three of our contributors outline their stock picks for 2009, with a heady mix of blue chips and perenially underperforming counters in the hope that this year might just be different. Marc Hasenfuss: What's not to like about commodity stocks at the moment? Blue chip heavyweights have been bullied down to levels last seen in 2005, while the prices of junior stocks have been have been plundered without prejudice. Most importantly investors look spooked, which naturally increases the chances of misspricing during the inevitable bouts of panic selling. The jury may be out on whether the resources sector has already become a buyers' market with some asset management luminaries suggesting there's still factoring in some downside. But when the resource index shifts up and down by between 5% on some days there have to be opportunities for wide-awake investors. Generally I would look to be buying back Anglo American, BHP Billiton and Anglo Platinum - hopefully at prices around R195, R135 and R400 respectively. I intend keeping a close eye on Sasol as well... although I have not yet properly contemplated a buying range (as there has been a fair bit of negative news at the energy giant). As for individual stock picks, I would be scratching around the bottom of the barrel for smaller cap bargains: TRANS HEX: Global economic turmoil should keep a lid on diamond demand for the foreseeable future, but I'm still comfortable buying into Trans Hex at levels below 300c. It's a well-managed company that could see its traditional Orange River operations complemented by strong production from Angola (where the company has hung in for the last few years). The group is currently in negotiations to assume control of certain De Beer's concessions. Structural changes at Trans Hex's parent Remgro may also increase the chances of further corporate action at the diamond miner. SALLIES: After the release of a fairly reassuring annual report and the confirmation of repected investment house Firebird Management as a major shareholder, I would be fairly comfortable accumulating stock this much maligned fluorspar miner. Honestly... what more can go wrong at this company? MERAFE RESOURCES - I think this chrome miner got too much of a beating in the resources rumble late last year. Merafe's management responded prudently in the commodity price downswing. They wasted no time in curtailing production - displaying the kind of tough love not usually associated with junior mining ventures. EASTPLATS: The market has gone off this one with a vengeance. But it's difficult to find too many fundamental flaws with Eastplats. It is in production, generates solid cash flow and has capable management. The possibility of corporate action adds flavour. INSIMBI - This metals trader has been overlooked as the main market makers seem to concentrate on Metmar. Insimbi has a niche spread of metals and some good clients. Lower metals prices could limit bottom line in the short term, but I think Insimbi offers some good longer term appeal at current prices. * Marc holds shares in Trans Hex and Sallies Debentures Marc Ashton After watching the spectacular collapse of resource stocks in 2008, I approached the idea of "Stock Picks 09" with some trepidation. On one hand you have people talking up the prospects for gold and saying that platinum has "bottomed" and on the other you have fundamental problems in the global economy with growth targets being cut across the board and the auto sector looking somewhat poorly. For my picks, I've elected to throw price prospects for commodities out the window because it looks like little more than a lottery at the moment. Instead I've gone with a "deal-maker", an energy play, a good old punt on gold just in case we hit "Apocalypse Now" in 2009 and then something a little different. Pallinghurst Resources - At the end of the day this is little more than a punt on Brian Gilbertson. Looking across the global equity landscape there are plenty of distressed assets (the new buzzword from the private equity players) looking for finance. Pallinghurst is in a good position to snap up some decent assets at reasonable prices and this makes them quite a flexible pick for 2009. Gilbertson needs to find only one decent deal for the company and I’ll sit pretty at the top of the stock picking challenge when we tally up at the end of the year. Sasol - I'm taking a bit of a contrarian position here. Credit Suisse has just announced that they are downgrading the company from "Outperform" to "Neutral" based on negative growth prospects and the oil price. Sasol has largely been treated as a proxy for the oil price - reasonably so - but a lot of the growth prospects for the company are attached to their other energy technologies including gas-to-liquids (GTL) and coal-to-liquids (CTL). The company has been on a huge capital expenditure drive over the last five years and this should continue until 2014. A lot of production will be coming on line in the next 24 months which should help diversify Sasol's earnings base. The company also has its price made in South Africa, despite its US depository receipt listing. A relatively healthy dividend yield of just under 4% and a relatively cheap forward price to earnings multiple (in Rands) of around 7 looks good. In terms of Sasol's fortunes being linked to the oil price at the moment, it should be noted that the company has in place hedges of around 30% for an oil price trading below US$90 a barrel which should buffer them a bit from continued weakness. Newgold ETF - A couple of strategists I have chatted to have been talking up the demise of the US dollar and the emergence of stronger Asian economies and currrencies. The gold exchange traded fund (ETF) was a useful performer in 2008, being one of the few instruments that managed to protect wealth. As an asset class in turbulent times I'm thinking gold still has some legs. Sterling Waterford Carbon Credit (CBN013) - Sterling Waterford (SW) have been talking up the carbon credit market as being a better performing hedge than gold in recent months. In Europe the carbon market is becoming big business and its fortunes are closely linked to economic activity with many of the mining and resource companies including AngloGold, Sasol and Omnia treating the credits as assets on their balance sheet. For South Africans, who still don’t know much about this asset clas the only real way to access this market is through the new carbon credit note issued by SW. The first tranche of this instrument returned around 150% over a three year basis and might make an interesting investment. Click Here to subscribe to our daily newsletter
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