MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from VP Capital co-founder and portfolio manager John So.

 

What’s hot right now?

When it comes to ‘the battery metals’ it is obvious which commodity has been the standout.

Investors have tried to look for complimentary metals to play on this very exciting trend, but the problem, So says, is with commodities like nickel and copper, driven by China’s construction sector, which experienced the brunt of strict COVID lock downs for the majority of 2022.

“A lot of the weakness we have seen throughout the year is going to reverse in the medium term partly because China is going to stimulate its economy as it comes out of lock down,” he explains.

“We have probably seen the worst of all the weak construction and manufacturing data out of China.

“Major companies like BHP and Andrew Forrests’ investment vehicles have been making stakes in copper and nickel companies like OZ Minerals and Mincor – despite the weakness in the commodity price.

“The major miners are getting these strategic assets on the cheap, positioning themselves for this battery minerals cycle that is going to play out for the next three to five years.”

While we have seen the bottom of both the nickel and copper price, from this point on So says there is only going to be good news coming out of China from an industrial perspective and therefore from a consumer perspective as well.

“On top of all this, the electric vehicle adoption trend is going to continue to be strong in Europe and start to pick up in the US with the Inflation Reduction Act so I think these commodities are going to trend up in the next 12 months,” he adds.

“It is time for investors to get positioned in them.”

 

Top picks

SANDFIRE RESOURCES (ASX:SFR)

One of the more conservative stocks So is looking at is Sandfire Resources.

Sandfire own a large copper asset (the Matsa mining complex) in southwestern Spain.

“What I like about Sandfire is that this asset allows it to transition from legacy Australian mining operations into a European project which is a region that is growing very quickly in terms of batteries for products like electric vehicles,” he says.

“The other thing I like about the company is that it has come off a little bit from its highs at the start of the year and is lower than its price a couple of years ago but the company has recently fixed up its balance sheet by undertaking a capital raising which puts it in a very good position to convert its substantial resources in Matsa into reserves.

“This also puts Sandfire on a good path to expand its mine life from the current five to six years to 10 years plus and once we see that, there should see a strong re-rating in Sandfire’s share price.”

 

CORE LITHIUM (ASX:CXO)

“Investors should look at producers and near term producers partly to take advantage of the very high commodity price one that I quite like at these current prices continues to be Core Lithium,” So says.

“Core Lithium has attracted a lot of attention in the industry especially in the last four weeks – we have had Goldman Sachs come out and materially down grade the company to a sell.

“At the same time, Macquarie Bank has a buy rating on it – I personally quite like Core because it is a near term producer trading on much lower cashflow multiples in terms of the next two years cash flows compared to some of the more diversified companies like Allkem and IGO Group.

“I think the question on whether the valuation is reasonable at the moment hinders on if you believe lithium prices will continue to stay high – my view is that they will, there is a shortage of projects coming online and secondly over the last two years, spodumene has been considered a more superior product for making lithium hydroxide as composed to brine operators in south America.”

Lastly, he adds, some of the concerns around the lithium commodity price hinders on China being able to ramp up supply very readily.

“History has proven that it is really difficult for a new region to ramp up successfully and replace existing product that is deemed as superior – for this reason I think Core Lithium is one to look at and take a position in given it has retraced significantly in the past four weeks as a result of this market commentary around lithium over supply.”

 

IGO (ASX:IGO)

Nickel is probably one of the more expensive components in the battery due to the amount of nickel that needs to be used and the fact that it trades on a per tonne basis much higher than materials like copper, So says.

“Investors should look for quality nickel projects on the ASX – there are a lot of companies in the midst of ramp up but it has taken them a while to really achieve milestones and as a result they should lean more towards established producers like IGO Group.

“Like a lot of its peers in the battery metals space, IGO has come off 20pc of its peak and it is inexpensive given the nickel price has retraced around 30pc and IGO continues to trade on an undemanding cashflow multiple of close to 10 times,” he says.

“Once we see this nickel shortage come into play through a combination of increased battery mineral consumption in China and Europe along with a reinvigoration of the Chinese economy — they are going to need nickel for their non battery industries as well such as stainless steel and so forth.

“Once we see some of that come back, the nickel price is going to see upside and IGO Group – which holds the Nova Bollinger Mine (one of the more higher grades and consistent long life assets in Australia) is going to put it in good stead, and presents a good opportunity for investors as getting it 20pc cheaper than two months ago.”

 

 

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.

Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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