Harvey Jones sizes up Antofagasta plc.
It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. So here's the question I'm asking right now. Should I buy Antofagasta (LSE: ANTO) (NASDAQOTH: ANFGY.US) ?
2012 was a tough year for mining stocks, as investors fretted about a Chinese hard landing and slowing global growth. But confidence returned in the autumn and accelerated in January, as we narrowly (and temporarily?) avoided falling off that US fiscal cliff. With investors embracing risk again, Chilean-based copper and gold mining giant Antofagasta recently soared 5% in a single day, although it has since fallen back to earth. Is now the time to buy it?
Copper and gold
Based in Chile, listed in London, Antofagasta is really a play on China, which consumes 40% of the world's supply of copper. Copper, used in wires and cables, is one of the world's most important industrial metals, and with emerging market demand exceeding supply, the price could only head in one direction. Until China slowed, investors panicked, and Antofagasta's share price fell to a 52-week low of £9.91 in June.
When markets fly, mining stocks tend to fly higher (the reverse is also true). By the end of the year, it had risen 36% to around £13.50, despite a short-term trading "sell" recommendation from Credit Suisse in October. The bank was concerned about over-optimistic production estimates, outperforming shares and a toppy copper price. But we don't do short-term trading at the Fool, and I was more impressed by Credit Suisse's favourable long-term appraisal, which lauded the miner's best in class balance sheet, operating cash flow margins, strong management and long-term growth prospects.
Antofagasta's unaudited results for the nine months to 30 September 2012 showed a 16% rise in group revenue to $4.8 billion, partly offset by a small drop in copper prices. The company's high margins and low debt make it a tempting prospect, depending on how bullish you are about global growth. This year kicked off in a blaze of optimism (or was it merely relief that we had survived 2012?) but can the good mood last? That's your call.
Copper and brass
For me, miners are an asset allocation decision. If you're under-exposed to this sector, now may be a decent time to dig in. But I can't get too excited about Antofagasta, which offers a yield of just 0.9% and trades on a price-to-earnings ratio of 15.8 times earnings. Last week, Deutsche Bank confirmed its "hold" recommendation, and lowered its target price by 5p to £13.35. That sounds a fair judgment to me. I think I'll keep my hands in my pockets for now.
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> Harvey doesn't own any shares mentioned in this article.