SUNDAY ROAST: The stocks that lit a fire under our experts this week

Tony Locantro

Investment manager, Alto Capital

In over 25 years advising on resources stocks, Locantro has never seen valuations as low as they are right now.

First, let’s get lithium out of the room. As far as Locantro is concerned, that stock bubble has ‘well and truly burst’.

“I think a lot of the lithium companies now coming out with announcements, it’s like turning up to a p..s up at 3am and you get offered a vegan pizza, no one wants it.”

Lithium concentrate prices have fallen from over US$8000/t early last year to US$850/t today at spot rates.

Gold, however…

“We have a lot of gold companies with gold in the ground,” Locantro said.

“Normally, enterprise values were $30-40 an ounce, sometimes now they’re $10-20. The gold stocks are dirt cheap.”

Gold stocks like Alto Metals (ASX:AME – 28c, $20m MC), a WA gold explorer with a 1.05Moz bounty around the historic but underexplored gold field of Sandstone.

“For a lot of the major companies going out and buying ounces is a lot cheaper than drilling and going through the process of putting something into production,” Locantro says.

“So I think we’re going to see another surge in M&A, especially in the junior gold sector. Alto Metals looks one to look at.”

“I don’t think the market’s appreciating the gold resources that (MD) Matt Bowles and the team are building.”

Locantro also notes Aurumin (ASX:AUN) as “active in the Sandstone region”, and holds in interest in Westgold (ASX:WGX).

Another commodity Locantro’s watching is copper.

“For all the hype around copper, the Australian copper juniors just see no love, share prices have capitulated,” he said.

One he believes has been sold off harshly – Stavely Minerals (ASX:SVY – 3c, $11.8m MC).

Stavely made the Cayley Lode discovery in 2019, Locantro notes, which saw shares run to “about $1.30”.

“Now they’re trading at 3.3-3.4 cents and … here is a chance for (MD) Chris Cairns maybe to come out and say well, ‘wait a minute, we’re still focused on the Cayley Lode and those large copper projects’.

“It doesn’t matter what commodity you find, if you make a big discovery, the market will rerate you.”

Michael Gable

PM and founder, Fairmont Equities

It’s a cyclical world on the bourse, according to Gable.

“What we want to do is parse out the sectors which do well when the economy is doing well. And highlight a few plum examples.”

This is a story less about exactly when the economic tide is going to turn… and more about what kind of raft you should be making.

Materials Sector – Champion Iron (ASX:CIA – $8, $4.5bn MC): “As manufacturing beefs up, so does the need for supplies of raw materials to produce their products. Construction also increases when the economy is strong,” Gable says.

“CIA certainly flies under the radar compared to BHP (ASX:BHP), Fortescue (ASX:FMG) and Rio Tinto (ASX:RIO). But this little known iron ore miner is developing a large resource in Canada.

“Recent production has now hit a record with plenty more to come online over the next few years.

“Despite the share price sitting near all time highs, the valuation is still more attractive than the larger iron ore producers.”

Industrials Sector – NRW Holdings (ASX:NWH – $2.83, $1.28bn MC): Industrials “usually have fixed costs which they pay in all economic conditions”.

“So, when the economy is good, their margins increase, and their revenues head higher. Companies are also more willing to spend more money on equipment upgrades and shipping when business is going well.”

Gable says keep an eye out for stocks focused on transportation, capital goods and commercial and professional services.

NWH provides diversified contract services to the resources and infrastructure sector.

“As spending in resources and infrastructure picks up, NWH should pick up more contracts and this is exactly what has been happening in the past several months.

“Recent guidance on earnings and their tender pipeline was upgraded by the company.”

Consumer Discretionary – Accent Group (ASX:AX1 – $2.34, $1.32bn MC): “A strong economy can lead to stronger consumer confidence. This can therefore lead to increased buying in the consumer discretionary sector.

Accent Group is the business behind footwear brands such as The Athlete’s Foot and Skechers.

It’s coming off an impressive FY23 where Earnings Before Interest and Tax surged 122.9% and Net Profit After Tax jumped 181.8%.

Gable says AX1’s gross margin percentage improvement of 100 basis points (to 55.2%) last year was the achievement which impressed most analysts.

But so far in FY24, the Accent share price has been maudlin, due to flatter sales and rising costs.

Gable describes that reaction as “overly negative” and “undervalued compared to the larger retailers … it is easily positioned to benefit from a recovery in consumer spending.”

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.