The first week-and-a-half of 2014 has seen the benchmark S&P/ASX 200 (ASX: XJO) drift by 0.74% from 5352 to 5312 points. It has been characterised by a sell-off of resources and media stocks, while some of Australia's favourite stocks of previous years have continued to shine.
The best performers have been REA Group Limited (ASX: REA), Domino's Pizza Enterprises Ltd. (ASX: DMP), and newly spun-off groups Orora Ltd (ASX: ORA) and Recall Holdings Ltd (ASX: REC), which have all returned over 5% in the first seven days of 2014.
Meanwhile, miners and mining services companies have continued their poor 2013 going into 2014, with Fortescue Metals Group Limited (ASX: FMG), Arrium Ltd (ASX: ARI), Monadelphous Group Limited (ASX: MND) and Rio Tinto Limited (ASX: RIO) all down over 6% so far this year. At the moment, two companies look opportunities to me.
Fortescue Metals Group
Despite encouraging data out of Port Headland Port Authority, the big miners have suffered as the spot iron ore price has dropped from around $140 to $130 in the space of a week on the back on concerns over the Chinese economy.
After hitting a 52-week high of $5.94 on two occasions in November and December, Fortescue has been hit the hardest and fallen by nearly 11% in 2014, to rest at $5.20 on Friday. The fall may represent a buying opportunity as long as the iron ore price recovers relatively quickly. Fortescue's large debt load makes the company a riskier proposition than its larger rivals, Rio and BHP Billiton Limited (ASX: BHP), however the risk is often priced into the valuation. Fortescue currently trades on a price-to-earnings ratio of 8.2, compared with over 14 for its larger rivals.
Twenty-First Century Fox Inc
Media group Twenty-First Century Fox Inc (ASX: FOX) announced earlier in the week that it plans on delisting from the ASX by mid-year and to transfer all shares to the NASDAQ index in the US. For existing shareholders there are essentially two options; continue holding and have shares transferred to the US, or sell. This represents an opportunity as Fox is a terrific company and Australian institutional investors will have to start selling in coming months as most funds are unable to hold stocks listed overseas. The share price is down nearly 6% for the year and could drop further over the next couple of weeks.
Foolish takeaway
Opportunities present themselves all the time on the Australian share market. Sometimes companies are oversold due to an overreaction to an announcement, or external factors such as commodity prices or the Australian dollar. 2014 will be no different and quality companies will present themselves at bargain prices throughout the year. Fortescue is somewhat at the mercy of the iron ore price, but if predictions of the price remaining around $130 in the intermediate term are correct, shareholders will be rewarded handsomely. Meanwhile, Fox is expanding its presence in Asia and consolidating its dominance of the global sports television market in order to grow earnings. Both remain quality companies, albeit Fortescue is higher risk due to its reliance on a single commodity and customer in China.
