Long-term investors see value in iron ore stocks

The next commodity super cycle will take some time, but according to some, it might be worth it.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The slump in the price of some of Australia's best known mining stocks caused by lower prices and expectations of iron ore have led some to believe that now is the time to buy.

Justin Smirk, a senior analyst at Westpac says "it is a longer-term development story unfolding" and believes mining stocks are relatively cheap to buy. Since the New Year, shares in Rio Tinto (ASX: RIO), BHP (ASX: BHP) and Fortescue (ASX: FMG) have dropped 17%, 11% and 25.5% respectively.

Some analysts believe the long-term value could be 20-30 years into the future, when the prices of both iron ore and coking coal return in the next commodities super-cycle. Kelly Teoh, a strategist with IG, says "people are talking about the commodity super-cycle being over, but commodities will always have a place in society because if you look at global population growth, we are reaching unprecedented levels".

In the past few months, we've seen Rio's Canadian iron ore assets go under the hammer and it's had a good amount of interest from non-mining suitors. Canada's two biggest pension funds have shown interest in the $4 billion, 59% stake of Iron Ore Co. of Canada.

Rio's new CEO, Sam Walsh, has made plans to cut costs by shedding non-core assets in a hope to return to a profit before 2014. So far, assets in the US, Mozambique, France, Australia and Canada have either gone under the hammer already or are still waiting for potential buyers.

Foolish takeaway

The long-term demand for iron ore will continue to grow as the global population reaches levels unprecedented today but as an investor you've got to ask yourself what is the best possible price to get some stocks in the resources sector. Goldman Sachs has tipped iron ore to reach $80 per tonne by 2015, meaning that revenues will be much tighter and the good companies will be sort from the bad. Perhaps the short run volatility could present some opportunities to buy i,n but when there are so many other great stocks on the market, perhaps your money could be better spent elsewhere.

The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »