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Miners look cheap after selloff - say analysts


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European Mining Stocks Are a `Buy,' Say Lehman, HSBC (Update1)


By Alexis Xydias


Aug. 24 (Bloomberg) -- Investors should add to holdings of European mining stocks following a slump in the shares and as demand for commodities grows, Lehman Brothers Holdings Inc., JPMorgan Cazenove Ltd. and HSBC Holdings Plc said.


It's ``time to buy the miners,'' wrote Christopher LaFemina, an analyst at Lehman in New York, in a report today. ``Underlying demand for commodities continues to be extremely strong, and factors limiting supply growth for most metals and bulk commodities continue to be an important issue.''


Since a worldwide market sell-off began on July 20, Europe's Dow Jones Stoxx Basic Resources Index has declined 11 percent, the worst-performing group among 18 in the broader Stoxx 600. The losses were triggered by concern that defaults among U.S. subprime-mortgage borrowers would spill over to other markets, slowing economic growth.


The mining measure is now valued at 11 times its members' current earnings, according to Bloomberg data. That is below the average ratio of 15 since the data started in 2003.


``Valuations have fallen to levels that discount a dramatic decline in earnings,'' Darren Winder and Robert Griffiths, London-based strategists at Cazenove, wrote in a report today. ``Yet with oil and non-oil commodity prices remaining at elevated levels, there is little evidence to suggest that this is about to happen.''


Sustained Demand


Crude oil rose above $78 a barrel in New York on July 31 on speculation demand will outpace supply as refiners increase fuel production.


Mining companies have been producing at capacity to meet rising demand from China for the metals and raw materials it needs to fuel a boom in construction. China, the biggest consumer of all industrial metals traded on the London Metal Exchange, imported more copper in the first seven months of this year than in all of 2006, the nation's customs office said Aug. 22. That helped boost London copper prices 14 percent this year.


Lehman's LaFemina recommended shares in BHP Billiton Ltd., the world's biggest mining company; Xstrata Plc, the largest exporter of thermal coal; and Rio Tinto Group, the world's third-largest mining company.


The Cazenove note didn't mention specific stocks. The report focuses on the U.K. equity market, where BHP and Rio Tinto are the biggest mining stocks.


/more: http://www.bloomberg.com/apps/news?pid=206...mp;refer=stocks

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