The boom is dead. Long live the boom.
The resources boom might be over, and resources companies may have had a rough ride on the market this morning, but that doesn’t mean the end of the line, particularly not for the large ones that have been able to keep a handle on costs.
Ever since Andrew Mackenzie took over the helm of BHP, the wily Scotsman has built a reputation as a personable cost-cutter and CEO that is well positioned to steer his company towards a profitable future with, or without, inflated commodity prices.
Charlie Aitken was impressed with BHP’s recent results announcement in mid Feb [1].
“Andrew absolutely delivered on my forecast of BHP being “run hard, very hard”. The focus on “productivity, margins and free cash generation” are clearly demonstrated in the interim result.”
“As you know, the only way the ASX200 can get to 6,000, is if BHP takes over leadership of the market. I think that happened this week and we have cleared another sentiment hurdle on the way to 6,000,” Charlie said in February.
Then in his report this week, Peter Switzer explained that even if commodity prices fall, ongoing demand for iron ore from China [2] should sustain these companies.
“So, what are BHP and Rio saying about their futures – do they feel lucky?
The heads of the companies iron ore divisions – Jimmy Wilson of BHP and Andrew Harding of Rio – reiterated their belief that China’s demand for iron ore will make one billion tonnes by at least 2025, which they argue will keep demand high for at least a decade,” Peter said on Monday.
“You, like me, might have enough of these stocks bought at lower prices but for someone who is building a portfolio to fund retirement into the future and who is not long these quality companies, a buying opportunity is here and could get even better.”
In his fortnightly chart analysis, Gary Stone examined the other behemoth – Rio.
“Like most resource companies, RIO’s share price has been in decline for three years since February 2011. However, over the last three months, there have been early signs of a potential change in RIO’s share price,” he said.
Check out his chart analysis here [3].
Source: Yahoo!7. Data as at March 20, 2014
Also read Paul Rickard’s response to a reader’s question today about why most Trustees will have BHP in their SMSF portfolio [4].
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report:
- Roger Montgomery – Carsales has plenty of potential [5]
- Charlie Aitken – Still banking on Queensland [6]
- Staff Reporter – Buy, Sell, Hold – what the brokers say [7]
- Fundie’s Favourite – Domino’s delivers for shareholders [8]
- Tony Negline – What to do when all SMSF trustees die [9]
- Questions of the week – Worley Parsons and BHP – buy, sell or hold? [4]