Mining Stocks Again Appealing

May 9, 2014

 

After two years of getting the cold shoulder from Wall Street, mining stocks are suddenly being touted by investment banks including JP Morgan. Just as commodity prices appeared to peak and mining sectors were considered on the way down, an about face has investors once again looking to add mining stocks to their portfolio.

 

In a research note JP Morgan stated the investment bank is now "overweight" on the mining sector, after being "underweight" for the past two years. Being one of the largest investment banks in the world, a buy recommendation from JP Morgan can have significant influence in how traders advise their clients.

 

Of the mining stocks JP Morgan is bullish Rio Tinto and BHP Billitom stand out. Rio climbed 3.2% and BHP rose 2.3 percent after JP Morgan's announcement.

 

Another powerful player in the future of mining is the second largest economy in the world, China. As of last week, China's official factory activity rose slightly in April rising up to 50.4 from 50.3 in March. Anything above the 50-point mark separates expanding activity from a contraction. In addition to showing stabilization in China's economy, the numbers also represent confidence in the mining market. With JP Morgan and China in agreement, mining stocks should see an improvement relatively quick.

 

A good indication of this play is the European Euro Stoxx 600 Index. Last year the mining sector fell over 13 percent and was the only sector to post a loss for the year. Thus year, the performance shows a significant change with the sector creeping up nearly 5 percent.

 

While this is good news for mining companies, investment experts warn that it will be diversified mining companies that will fare well, stressing that single-product producers may not perform as well. Investors are less likely to back gold alone and would prefer a company that can show results for several mineral resources.