Commodities | Jul 12 2006
By Rudi Filapek-Vandyck
Investors in resources stocks can take heart from the fact that price forecasts (and therefore earnings forecasts for commodity producers) are still going up whenever securities analysts prepare an update.
We spotted an general industry update by Deutsche Bank recently, with estimated prices for commodities going up. The latest update by Macquarie is no exception, highlighting iron ore, copper and nickel in particular.
Interestingly, Macquarie agrees with the supply-will-catch-up movement that has voiced its concerns of late, acknowledging most commodities will see their prices peaking either this year or next year, but because earnings forecasts for individual companies have yet to catch up with spot prices, the sector should continue to enjoy positive momentum.
The broker likes the big diversifieds BHP Billiton (BHP) and Rio Tinto (RIO), but also points out that some of the pure plays have increased leverage (and thus higher upside) while not necessarily being a high risk play.
Macquarie’s favourites outside the big two are Jubilee Mines (JBM), Kagara Zinc(KZL), Lihir Gold (LHG) and Oceana Gold (OGD) and Iluka Resources (ILU).
The broker’s selection of preferred commodity plays shows a large overlap with the experts at GSJB Were who, coincidentally, decided to publish two equally bullish reports on the sector today.
GSJBW likes Minara Resources (MRE) and Zinifex (ZFX) the most ("clear stand outs") – again, that is apart from the two big ones- with strong investment cases seen for Kagara Zinc, Jubilee Mines and Alumina Ltd (AWC).
Other stocks that deserve investors’ attention are Oxiana Resources (OXR) and Iluka, according to the report.
Macquarie also raised its oil price forecasts today (another trend that has remained intact so far) including its long-term oil price forecast from US$40 per barrel to US$45 per barrel from mid-2009.
Earnings forecasts for all oil companies covered by the broker went up as a result. Their earnings estimates are now based on an average West Texas Intermediate price of US$69.20 per barrel in 2006 (from US$65.14 previously), US$70.21per barrel in 2007, (from US$62.04 previously), and US$66.91 per barrel in 2008 (from US$60.80 previously).