Materials Stocks Tips and News on the ASX.
Shares to buy: Fortescue Metals Group (FMG)
FMG recently confirmed that it is on track to hit the top end of its iron ore export guidance, and possibly exceed it, whilst at the same time continue to cut costs. The company also took its unit costs below $US13 per tonne for the first time in the December quarter, with an average "C1" cost of $US12.54 per wet metric tonne. Fortescue has now lowered its cost for a 12th consecutive quarter. The company managed to pay down another $US1 billion of debt in the past quarter and said it held $US1.2 billion in cash at the end of December, while net debt stood at $US4 billion. After reporting another strong quarter of shipments and cost cuts, chief executive Nev Power said shareholders could be in line for better returns. "We need to continue diverting most of our cash flow to repaying debt. But we will progressively look to increase returns to shareholders," he told reporters. The company declared a 12 cents per share final dividend in August, exceeding analyst expectations. It will declare its next interim dividend on February 22. These are obviously all positives for a company that continues to deliver on its guidance, cut costs and pay down debt, and we believe that market will continue to reward FMG by bidding up its shares. Technically, the stock is in a fairly well defined uptrend, where momentum is strong but not currently overdone. Targets are towards $8.
Share to buy – Whitehaven Coal (WHC)
Until recently, we've viewed a lack of market confidence as mis-pricing WHC.
Over the journey, the company has maintained an earnings margin average of $13/t but it appears the market has been factoring in the future coal price and giving management little benefit for being able to sustain its margins, despite its track record.
The risk lies with the thermal coal price outlook and whether China continues to retreat from the trade.
Today the company announced record high ROM coal production of 5.7Mt for the March quarter, up 21% compared with the previous corresponding period and 44% YTD.
The company also recorded its highest quarterly saleable coal production of 5.3 Mt for March, up 28% compared to a year earlier, and 48% YTD.
Whitehaven Coal says that it is on track to meet FY2016 guidance for saleable coal to be in the range of 19.5 Mt to 20.1 Mt.
The miner says that costs guidance for the full year FY2016 is now expected to be $57/t.
We think momentum can now build in the stock and are prepared to be buyers..
Share to buy – Rio Tinto (RIO)
Since bottoming out near $38 in December, iron ore has rallied to presently be trading above $48.
- Overnight, the bulk commodity jumped 3%.
- The bounce in iron ore, unsurprisingly, has coincided with a bounce in Rio Tinto which has completed a basing pattern and now appears poised to push higher.
- We are looking for a short-term rally in Rio and active traders can consider being buyers.
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