Australia famously rode to prosperity on the ‘sheep’s back’. Wool was Australia’s main export commodity from 1871 to the 1960s. For over a century it was Australia, not Jason and the Argonauts, who had the Golden Fleece.
Over time, Australia moved on from wool to resources. It made sense. We are a resource rich nation; one that’s close to booming countries like China, which is hungry for more minerals.
Commodity prices continued to rise, which boosted our national income. Australia rode on the back of mining trucks to a decade of success.
But the party didn’t last forever. Commodities had to come down at some point in time. And, around 2011, that’s exactly what they did.
The drop in commodity prices wasn’t a huge deal at first. But as prices continued to drop, economists started to worry about the effects it would have on the economy.
Businesses tied to commodities started to panic. Investors started taking their money out of resources. From the start of 2011 to the end of 2015, the S&P/ASX 300 Metals and Mining index dropped 62.6%. The S&P/ASX 200 resource sector didn’t fare any better, dropping 59.4%.
Source: Google Finance
It’s now believed the Australian mining boom is over. Commodity prices remain low, and demand is struggling to pick up. However, in my view, right now is probably the best time to invest in a couple of Aussie miners.
Greedy when others are fearful
It’s understandable to think the mining sector has run out of opportunities. Commodity prices are low and, therefore, it’s harder for miners to generate earnings.
But what do we primarily want to do as investors? Buy low, and sell high. So why would you buy when things are going great? Unless you think circumstances could get better, you’ll likely buy close to the top.
Instead, why not consider buying when things look bleak and uncertain? Warren Buffett has said before: Be greedy when others are fearful and fearful when others are greedy. Of course, Buffett is not punting on stocks beaten down by the market.
Instead, his message is to not trust the views of the market. Buffett is a man who does his homework. When he identifies a great company, market sentiment is not going to sway his investment decision.
So you may want to consider researching into some Aussie miners. Even if everyone has counted them out, but you believe you’ve found a great opportunity, you shouldn’t let emotions psych you out.
Out of the top performers on the ASX 200 this year, the majority are miners. The table below shows the top 12 performing stocks on the ASX 200 this year.
The S&P/ASX 300 Metals and Mining index and the S&P/ASX 200 resource sector have also picked up. Both are up 34% and 22.7% respectively.
Source: Google Finance
Now, this doesn’t mean that mining and resource stocks are going to climb to their past heights.
But if you’ve been neglecting resource stocks, now might be a good time to look into them for your own portfolio.
Junior Analyst, Money Morning
PS: Fortescue’s share price rally this year emphasises the great opportunities in mining stocks. The resource sector isn’t dead. It’s just subdued. And there is rarely a better time to invest than when share prices are low. According to Money Morning’s resource specialist, Jason Stevenson, there are many more great mining stocks out their alongside Fortescue.
After reading Jason’s report ‘The Top 10 Australian Mining Stocks for 2016’, you’ll know exactly where to look. Jason reveals why now is the perfect time to buy mining stocks. And he’ll share 10 of the best miners trading on the ASX this year.
To get your free copy of Jason’s report, click here.