Resources chips are diamonds in the dirt of diving shares
By REBECCA LE MAY
SOME unloved stocks are now a
third of their fair price and the
share rout has bargains for investors
and predators, analysts say.
Cheap share market valuations
have led to strong merger and
acquisition activity, particularly in
the resources sector.
The most recent examples are the
Lihir/Equigold merger and an Indophil
Resources bid for Lion Selection.
And we're going to see more of
this, there is no doubt," said independent
analyst Peter Strachan.
CopperCo, merging with Mineral
Securities, was a prime example of a
company priced at a third of its value,
he said, adding that many companies
were trading at bargain basement,
bottom-of-the-cycle levels.
"They're probably 3-5 per cent from
the bottom in any continued downward
movement, which I think we're
going to get," Mr Strachan said.
"The stocks that stick out are
property developers and property
trusts, and also financials - the
main banks, Suncorp-Metway and
ANZ particularly. Those stocks have
fallen 50 per cent.
"I know there will be profit downgrades
from banks ... but I still think
if you take a 2-3 year view [they] are
looking particularly cheap."
Mr Strachan said oil and gas
producers like Petsec, Arc Energy,
AWE, and Roc Oil represented extraordinary
value.
"Petsec ... would spit out the same
amount of cash as you would pay to
buy the company in about 14
months," he said.
While not yet producers, oil and
gas explorers Otto and Nexus were
also good value, he said.
He said BHP Billiton and Rio
Tinto, which are 20 per cent of the
ASX 200, were highly priced.
"If Rio goes back to $80 and BHP
goes back to $28 to $29, we'll see this
market back at 4800 points, and
that's when I'd be looking to pick up
some stock." he said.
