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MoneyTalks: TMS Capital’s Ben Clark reckons these resources players could hold their own as interest rates rise
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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, TMS Capital portfolio manager Ben Clark talks about his favourite stock picks for 2022.
What’s hot right now?
Back in January, Clark was a fan of growth stocks, specifically US tech stocks. But with the emergence of inflation and the massive rally in bond yields, TMS has veered away into historically greener pastures.
“The reality is, as long as the central banks keep lifting rates the way that they have, it creates some pressure on valuations and multiples, and businesses can do as well as we hoped they would, but you’re going to continue to see contractions in multiples,” Clark said.
“As we were getting into February and March, and it was becoming more obvious that rate rises were coming, we started looking in other areas of the market at businesses that are going to benefit or have less pressures on valuations from rising rates.
“And historically, resources have been a good place to be in a rising interest rate environment.”
However, Clark did flag that because of the lockdowns that China has persisted with in dealing with COVID has meant its economy is nowhere near as strong as it might otherwise have been – and that’s put pressure on resource pricing.
“The resource space has been patchy this year, we’ve had the weird knock-on effects of the Ukraine invasion that have meant coal’s gone nuts, oil’s gone nuts, and gas has gone nuts, whereas the iron ore price fell to around $80 a tonne the other day,” he said.
“But that’s still been an area that we’ve been looking to take more exposure in.”
Look for resource picks making a profit
Everyone is frothing over lithium and rare earths at the moment, but the market is not unaware of that, Clark says.
“If you’re going to be in it, be in something which is making profits today and not in three or five years,” he said.
“Maybe the company still stacks up, but we’ve seen that there are booms and busts in all resources and yes, the outlook for lithium is about as good as it can be, but the market’s not unaware of that and it’s pricing a lot of that in.
“As an example for us of a resource stock we started buying early in the year is Mineral Resources (ASX:MIN)
“We saw a business where that wasn’t being priced in and while not buying it at the moment – it’s had a big run – we’re still holding it.”
In 2023, MIN will be the fifth largest lithium producer globally and it’s just brought its two key mines on ahead of schedule and under budget.
The company holds 40% and 50% stakes respectively in the Wodgina and Mt Marion lithium mines, forecast to produce around 29% of the world’s supply.
“MIN is sort of a weird business because it’s a quite a big iron ore producer, it’s a big mining services player, and has lots of different parts,” Clark said.
“But in 2023, the lithium division is going to probably earn more than the entire company last year. That’s quite a big change.”
MIN share price today:
This mining royalty player was under-appreciated
Another favourite for Clark is Deterra Royalties (ASX:DRR), who extracts its income via a royalty over BHP’s Mining Area C project in the Pilbara, and high grade Canadian iron ore miner Champion Iron (ASX:CIA).
“Deterra is the first proper royalty company that we’ve seen trade on the ASX,” Clark said.
“And when it was getting spun out of Iluka (ASX:ILU) we did a bit of work on it and realised how well royalty companies have traded in Canada and Europe and we felt that the market is under-appreciating it.
“It hasn’t done as well as MIN, but it’s held up well, and it’s paying a massive dividend – and it’s probably one I would still be happy to buy at the moment.”
Clark noted that the company has been held back somewhat due to the weak iron ore price this year, and while the share price has gone sideways, it’s paid out a 12-23% yield, “so it’s still been good.”
DRR share price today:
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.
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