Dare we believe it? There's growing consensus that this is the time to buy mining stocks after more than $100 billion of shareholders' wealth been wiped out from Australia's most prominent miners in just six months.
A number of writers at The Motley Fool (including myself) have been saying this for a while now, and it's nice to see a number of brokers sticking their neck out and echoing our view even as many have lowered their earnings forecasts for the sector.
The fact is mining stocks appear to have overshot on the downside.
The number of "buy" recommendations on BHP Billiton Limited (ASX: BHP) has shot up late last week with Goldman Sachs, Macquarie and Canaccord Genuity upgrading the Big Australian to a "buy" or equivalent.
Further, Goldman Sachs has put BHP on its "conviction buy" list while Credit Suisse has added the mining giant to its "Australia Long Portfolio", which comprises of the most fundamentally attractive ASX listed stocks under its coverage. Credit Suisse is encouraging investors to favor mining stocks over the banks.
Even UK brokers may be coming around to the idea that it's time to buy the miners. UK analysts are a lot more bearish on the sector than those in Australia but that has not stopped Barclays suggesting that blue chip mining stocks offer opportunity after the dramatic slump.
The London-headquartered bank cited growing global gross domestic product (GDP) from the stimulatory effect of falling oil prices, tightening supply of key commodities and supportive valuations in the sector for its bullish take.
The US-traded shares of BHP and Rio Tinto Limited (ASX: RIO) jumped 3.1% and 2.5% higher on Friday to $US46.14 and $US44.20, respectively.
Meanwhile, laboratory testing company ALS Limited (ASX: ALQ) has also given investors an encouraging, albeit early, sign of a tentative turnaround in mining activity with its better than expected quarterly update.
ALS is forecasting underlying net profit of $46 million for the three months to December 2014, which is 15% ahead of its earlier guidance. Cost cutting played a big part, but its geochemistry business (which comprises mineral testing for mining companies) enjoyed its strongest quarter in calendar 2014 in terms of revenue and profit margin.
The stock jumped 3% on Friday to $4.84.
I am not predicting a "V- shape" recovery of any kind and buying into the sector now is akin to trying to catch a falling knife. But those with at least a one-year investment time horizon should step back into the blue chip miners.
As I wrote at the end of last year, your portfolio is at risk of underperforming for those who continue to shun the sector in 2015.
