Canaccord Genuity has shared its best investment ideas for resource investors looking for opportunities during the COVID-19 pandemic.
The world continues to face uncertainty brought by the impact of the COVID-19 pandemic, with investors trying to look for cues as to where the markets are going and how to manage their portfolios in the current economic climate.
For Greg Galton, Canaccord Genuity’s director of private wealth research, the question investors should be asking right now is not so much if a company is earning less this year, but whether the impact of the coronavirus will decrease its value moving forward.
“Ideally investors should look to own a portion of their portfolio in ‘all-weather’ businesses where the impact of economic externalities on the value of the business is minimal,” he said in a recent report. “These businesses tend to be high quality, wealth creating businesses whose value steadily increase year on year; but importantly this does not mean their earnings must rise every year.”
Canaccord believes Australia has been able to control the impact of COVID-19 effectively in its initial stages, which indicates that it might be well-equipped to handle any future developments and may be in a better position than other countries to recover from the economic crisis.
“While the federal government has offered a significant stimulus package to alleviate the strain on the domestic consumer and employment market, there remains a very high probability that Australia will experience a recession for the first time in 30 years,” Galton’s report to clients reads.
According to the firm, Australian resource stocks are better positioned now than they were heading into the financial crisis of 2007 to 2008, and should outperform on a recovery in global economic growth.
Below is a list Canaccord’s five best investment ideas for resource-focused investors looking for opportunities during the uncertainty of the COVID-19 pandemic.
These ASX ideas reflect stocks that Canaccord believes possess high-quality characteristics, are trading at a discount to the firm’s fair value estimate and are currently exhibiting positive price momentum. All stats and data included were current as of April 29, 2020.
1. BHP (ASX:BHP)
Current price: AU$31.12; year-to-date movement: -20.1 percent
Mining giant BHP extracts and processes minerals and oil and gas with a focus on Australia and the Americas. Its commodities business includes everything from copper to potash.
On April 21, the company released its operational results for the nine months ended March 31, saying it has implemented extensive measures across its operations to keep its people and communities safe from COVID-19. Among other things it has deferred non-critical activities and restricted travel.
BHP, which is still reviewing its guidance for the year, but has already warned it will be lower than the expected AU$8 billion, reported a strong financial position and said its capital and exploration expenditures are flexible at this time.
2. Alumina (ASX:AWC)
Current price: AU$1.54; year-to-date movement: -33.04 percent
Victoria-headquartered Alumina is focused on investing worldwide in bauxite mining, alumina refining and selected aluminium smelting operations through its 40 percent ownership of Alcoa World Alumina & Chemicals (AWAC), which has a production capacity of approximately 14.1 million tonnes per year.
Due to AWAC’s performance in Q1 this year, Alumina received a AU$33.8 million cash distribution, up from AU$27.6 million on the corresponding distribution for the previous quarter.
To preserve cash, Alumina will put all growth capital expenditure on hold for the remainder of 2020, reducing spending by approximately AU$30 million; it will also look to defer a similar amount of non-critical sustaining capital expenditure over the course of the year.
3. OZ Minerals (ASX:OZL)
Current price: AU$8.79; year-to-date movement: -16.92 percent
OZ Minerals is a copper-focused international company that owns and operates: the Prominent Hill copper-gold mine in South Australia; Carrapateena, an iron-oxide-copper-gold underground mine, also in South Australia; and Antasa, a small, high-quality copper-gold mine in Brazil.
In its Q1 2020 report, OZ Minerals said no material production impacts were experienced at its mine sites following the global COVID-19 outbreak, with all operations remaining on track for 2020 production guidance based on current operating conditions.
4. Iluka Resources (ASX:ILU)
Current price: AU$7.17; year-to-date movement: -22.15 percent
Focused primarily on mineral sands, Iluka’s portfolio includes: operations in Australia and Sierra Leone; projects in Australia, Sierra Leone and Sri Lanka; and a globally integrated marketing and distribution network. It also holds a royalty over iron ore produced from specific tenements of BHP’s Mining Area C.
During the current pandemic, Iluka said operational continuity has been maintained, with all mining and processing sites currently operational. In its quarterly review, Iluka also said it maintains a strong financial position, but has withdrawn its previous 2020 guidance.
5. Saracen Mineral Holdings (ASX:SAR)
Current price: AU$4.50; year-to-date movement: 33.54 percent
Australian gold miner Saracen Mineral Holdings holds interests in three mines in Western Australia: Carosue Dam, Thunderbox and 50 percent of the Super Pit.
In its quarterly review, published on April 28, the company reported record gold production of 158,132 ounces at an all-in sustaining cost (AISC) of AU$1,133 per ounce, with production for nine months to March 31 reaching 374,584 ounces at an AISC of AU$1,081 per ounce.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.