long resources short spi

No place to hide
By Charlie Aitken

extract from Eureka Report article



Long resources, short SPI

The right trade remains long a basket of leading resources short share price index futures. The amazing thing is Aussie institutions are completely underweight gold, and in this scenario the biggest winner will be gold. We will wake up one day in the next two weeks and gold will be up $US50 ounces in a night. Buy Newcrest (only 20% of the register is Aussies), Lihir Gold, Oxiana, St Barbara, Sino Gold, Apex Minerals, etc.

Oil upgrades must come too, with the oil price at $US102 a barrel. BHP Billiton, Woodside Petroleum and Australian Worldwide Exploration are our top picks. Santos is a "mud" stock, forget it. BHP will have more oil leverage than Santos as the Gulf of Mexico comes on. Australian Worldwide Exploration looks a great buy at current prices with no debt and real oil price leverage.

Uranium is a buy (again BHP) with oil at $US102, and our pure play idea is Paladin. Paladin look good to me (best performer in February). Nickel and zinc will play catch up to the other steel-making raw materials and that has clearly started. Buy Zinifex (cheap entry into the "new Oxiana"), Minara Resources, Kagara and Western Areas. There is nothing surer than that price/earnings relativity is heading to resources from industrials due to the resource sector's pristine balance sheets, transparency, strong earnings growth and continued M&A activity.