Increased government spending on infrastructure would help underwrite strong demand for mining stocks, according to Regal Funds Management’s Phil King who tipped ASX-listed Nickel Mines at the Sohn Hearts & Minds conference on Friday.
King’s recommendation of Nickel, which listed on the ASX last year, and the recommendation of mining services company Mineral Resources by two other fund managers, Emma Fisher of Airlie Funds Management and Hamish Corlett of TDM Growth Partners, was the first time that resource companies have been tipped at the four Australian Sohn conferences.
Based on the Sohn conferences of New York, which begun in the 1990s to raise funds for medical re- search, the four Sohn conferences in Australia have tended to have stock picks with a strong emphasis on technology and the new economy.
But Mr King said investors needed to be reminded of the long importance of the mining industry and mining stocks in Australia. “Mining stocks have outperformed the broader market in the last 100 years in Australia,” he said.
He said mining stocks would continue to perform strongly if there was to be an outbreak of inflation in the future. “Mining stocks like inflation,” he said. “They provide the best hedge for an equity portfolio.”
He said while the long-term demand for resources did not look strong, mining stocks would benefit from an increase in spending on infrastructure.
He said there was a growing realisation that monetary policy and quantitative easing was not working and that “governments need to do more fiscal stimulation”.
“Increased spending on infrastructure around the world over the next five to 10 years will be positive for mining stocks,” he said.
He said mining stocks were returning cash to shareholder at the moment across the board from large cap companies such as BHP and Fortescue to smaller companies. “The demand side looks weak at the moment but that’s the opportunity,” he said.
Mr King recommended the newly listed company Nickel Mines, which has investments in the nickel mines in Indonesia.
He said demand for its product would benefit from the growth of electric vehicles. He said the company traded at a huge discount when it listed last year but had since shown that it could meet its production targets. “We think a lot of the risks will disappear from the share price,” he said.
Mr King said Regal thought the company’s share price would go up by two to three times over the next few years.
He said there were sectors of the Australian market that were overpriced including tech companies, such as Wisetech, Afterpay and Zero and biotechs such as PolyNovo, Pro Medicus, Nanosonics and Clinuvel Pharmaceuticals.
“The biggest bubble in the Australian market at the moment is Australian biotech,” he said.
Mr King blamed the growing trend towards passive investing as one reason for some of the bubbles in the Australian market.
“Passive investors get a free ride on active managers, which makes markets inefficient,” he said. “If there are not enough active managers, it can be dangerous for passive investors.”
Airlie Funds Management’s Emma Fisher tipped ASX-listed mining services company Mineral Resources, arguing that it was trading only five times earnings, a 50 per cent significant discount to its peers, with plenty of upside potential.
She said the company’s mining services operations were tied to production and not capital investment by mining companies and not subject to boom and bust capital spending like its rivals.
She said its earnings had held up well in the years after the global financial crisis. “We think it is a high quality mining services company,” she said.
This article was originally posted on The Australian here.
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