Resource stocks still a buy?

RELATED QUOTES

SymbolPriceChange
AWC.AX1.37-0.0050
AGO.AX0.975+0.0200
BHP.AX38.28+0.080
NCM.AX10.25+0.130
RIO.AX62.98+0.190

Last week, many investors were dumping gold and resource stocks at any price they could, but this week they have rebounded stronger.

Last Wednesday, BHP Billiton Limited (BHP.AX) reached its lowest point since September at $31.66 before opening today 4.64% higher. Competitor Rio Tinto Limited (RIO.AX) climbed $1.95 to $56.79 at close yesterday, which represents a 4.36% increase from its low last week. Perhaps investors remembered that BHP and RIO are trading at a premium, with their P/E ratios only 11.96 and 10.28 respectively.

Similarly, gold stocks took a beating. Newcrest Mining Limited (NCM.AX) opened after the Easter weekend at $20.10 before dropping to $18.46 by midweek but has also regained some dignity this week, opening today at $19.47.

Worth your money?

Since Foolish investors are patient and buy quality stocks at bargain prices, it’s easy to see how market volatility can make investing that little bit easier.

Atlas Iron Limited (AGO.AX) dropped below $1.00 last week and will open today at $1.125, not a bad return for one week’s investing – but that’s not our style. Recognising that good stocks may be affected by poor market conditions is just part and parcel with investing. Therefore it’s important to focus on long term growth. Looking at industry trends can help you understand the direction your investment might be heading.

On Monday it was announced Port Hedland’s iron-ore exports rose 25%, with shipments to China rising 37% on-year. Conceivably, there may still be money to be made in resource stocks.

Yesterday Alumina Limited (AWC.AX), through its 40% interest in the series of operating entities forming Alcoa World Alumina & Chemicals (AWAC) released its first-quarter results. It reported a net income of $149 million, or $0.13 per share despite lower metal prices and adjusted EBITDA was up 11% year-over-year. In addition to over $1.6 billion cash on hand, global end market growth remains solid.

Foolish Takeaway

Financial markets will only ever move up or down, but in the long-run, well run companies are likely go up – regardless of short term volatility. Finding the right company can be difficult but if you remember to do your research and restrain yourself from clicking anxiously on the trade button you’ll find investing success comes easier.

Oil prices are set to rise dramatically over time. With limited supply — recent estimates suggest we only have enough oil to last 40 years — and growing demand from quickly expanding economies like India and China, oil prices can’t help but go up. Position yourself to profit from this trend now, with The Motley Fool’s brand-new FREE research report, 3 Oil Stocks to Send Your Portfolio Gushing Higher”. Click here now, it’s FREE!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.

Market Data

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