Today metal and mining stocks are seeing some weakness with XME down about 3%. This perhaps is primarily driven in part by market view about economic recovery and in part by Chinese rambling about Rio Tinto (RTP). RTP shares are in particularly down about 5.8%. But I personally think that any weakness in metal and mining stocks is a buying opportunity. Adding them to the portfolio by utilizing any weakness will provide a great boost to portfolio. The reason is that these companies are the only ones which are actually sitting on the most tangible and valuable resources (because of sheer limited supply of them) in the world.
Any recovery, however small and limited it might be, will have to buoy the demand for these scarce resources. So both RTP, FCX and BHP are definitely a buy for our portfolios, especially RTP with today's weakness. There is some nervousness in investors about RTP due to comment from a Chinese official. But the swift denial from other Chinese officials about the authority of the comments I think clearly reflects intentions of China to pressurize Rio Tinto into coming to the discussion table. This is a lot of politics but investors should note that these events started after RTP denied China government's majority owned Chinalco (NYSE:ACH) to offer a stake in the company. But China clearly realizes that importing iron ore from Australia is much cheaper for it than any other major producers like Brazil simply due to its geographical location and transportation costs. So I don't think China will have any other viable alternative to import iron ore in the near future. And in any case we have to remember that China represents only a fractional part of iron ore business operations for Rio Tinto. The other good thing is that its ADR is not available to retail investors for shorting and thus avoids any false panic situation to be created. So I am putting a buy on RTP, especially given that its stock is down about 25% from recent highs. This is a great stock with 2 year target for ADRs of $240 (in weak economic recovery scenario) and $285 (in strong economic recovery scenario).
Other focus for the future investment is on gold stocks including Goldcorp (NYSE:GG) and Freeport (NYSE:FCX). I believe that inflation or no inflation, we are sitting in a global economic environment where focus will soon be turning from fiat (paper money) economy to currency values being determined by precious metals. A total conversion may not happen in the near future but some sort of alignment is definitely in the order as soon as the global economy stabilizes and governments can spend more time in analyzing the root cause of current credit problems emanating from United States. So instead of buying gold directly and worrying about its storage, I would rather suggest to invest in gold stocks like GG and FCX.
These stocks are perhaps the best assets for forward looking portfolios. I would still stay away from paper money driven bank stocks like Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and Morgan Stanley (NYSE:MS) specially given that bank stocks have rallied almost 30% in the past month alone.
Disclosure: No position in stocks discussed in the article at the time of writing. I'll add RTP and FCX to my portfolio soon at a good entry point.