The shares have halved and the boss is buying.
The stock market is chock-full of commodities companies, and they have all taken a hammering in the recent market tumble.
The commodity boom is not over
Although regular readers will know I have been pretty bearish in recent weeks, I don't think we are going to have rerun of the market crash of 2008. The current slump looks like being a long-running malaise, hitting mature markets such as Europe and the US.
Mind you, I expect emerging markets such as the BRICs to be remarkably resilient. Their demand will continue to grow, putting a floor on commodity prices.
It used to be said that America was the main driver of the world economy, and that if America sneezed, the rest of the world would catch a cold. I don't think that is the case anymore.
Having said that, the great price spikes we have seen in commodities such as oil, wheat, cotton and copper, are likely to be tempered. Overall, I think the picture is nuanced, but I do feel commodities shares, and especially miners, have been oversold.
This miner is half price
Of all the miners on the market, one of the biggest bargains I feel is Vedanta Resources (LSE: VED).
Vedanta mines copper, zinc, aluminium and iron ore, and it also has a commercial power-generation business. Plus the group is planning to acquire the Indian unit of oil business Cairn Energy (LSE: CNE).
Vedanta's roots are in India, where it was founded by Anil Agarwal -- who still runs the company -- in 1976. The concern now has interests in Zambia, South Africa and Australia.
In the spring of 2010, the company's shares hit 2800p. Vedanta's stock currently trades at 1328p. This miner, therefore, is half price.
Anil knows a bargain when he sees one
Is there any reason for the crash in the share price? Has there been a BP (LSE: BP)-style environmental disaster? Has a shortfall in reserves been uncovered?
Well, no, no and no. The worst news I could find was Vedanta needing to apply for environmental permits for some of its mining ventures, but this is no reason for a 50% share price fall. As far as I can see, the company is just very oversold, and looking really cheap at the moment.
Anil Agarwal certainly agrees. He has been hoovering up Vedanta shares like nobody's business -- in the past couple of weeks alone he has bought equity costing tens of millions of pounds. Why? Well I think the answer is quite simple: this canny businessman knows a bargain when he sees one.
Yes, you really can have both growth and value
The historic P/E ratio is just 7.3, yet the company continues to increase production of metals, as well as growing its power-station business. Oil production is also expected to ramp up, bolstered by the Cairn acquisition.
In the past year, there has been a spurt of growth, with revenue rising 44% and operating profit up 52%. Admittedly, this is only one year; the key question is whether the expansion can be maintained over the long term.
Vedanta's strategy certainly aims for further organic growth. What's more, with its strong Indian connections and heritage, the group is very well positioned to take advantage of the Indian industrial boom.
My view is that Vedanta can fulfil its promise of continued growth into the future, though (realistically) not at the breakneck rate of 2011.
If it does, then this really is a growth company at a value price.
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