It's not a pretty week to be a resource stock owner. For that matter it's not a pretty week to be a clothier either…but more on that later.
Commodities are on the way down and it's becoming apparent that investors are twigging to the risks and selling their shareholdings, accelerating the decline.
That's why so many of this week's losers are involved in resources:
Betashares Commodities Basket ETF-Currency Hedged (Synthetic) (ASX: QCB)
As if the name wasn't mouthful enough, Betashares Synthetic Commodity Exchange Traded Fund (ETF) has also been a bitter pill to swallow for investors – it's down 31% for the year.
It's a similar situation at Betashares Gold Bullion (ASX: QAU) and MVGOLDMINE CDI 1:1 (ASX: GDX) – indexes representing gold bullion and gold miners respectively – which are down 16% and 21% in the past 12 months.
These falls have been matched by a broad range of commodity stocks including AngloGold Ashanti Limited (CHESS) (ASX: AGG) which has fallen 52% and Beadell Resources Ltd (ASX: BDR) which has shed 78%.
The outlook for commodity markets in general is not bright and I would not buy any of these ETFs at today's prices. There may be individual stocks that are a bargain, but buying commodity ETFs could get you burned.
Sims Metal Management Ltd (ASX: SGM) – last traded at $9.20, down 17.5% for the year
Sims has fallen even further since last week's appearance and I'm not surprised, with the stock still appearing quite expensive.
A forward Price to Earnings (P/E) equation of 20 looks very pricey for a business that is expecting to generate most of its profit growth through cost savings in the coming few years.
The outlooks for copper, iron ore and steel (and thus recycled steel) continues to be quite weak while aluminium has also started edging downwards, while global economies stagnate. I'm just not confident enough to invest my money in Sims, even though I believe the business is capable of significant cost savings.
I expect that Sims could fall further in the near term as markets weaken and/or if it fails to meet its ambitious savings targets.
OrotonGroup Limited (ASX: ORL) – last traded at $1.88, down 60% for the year
I'd hoped that I'd seen the last of OrotonGroup when I wrote about it in 52-week lows in March last year. I was virtually certain that was the case when the company posted a cracking full-year result, lifting revenue 25% and profit after tax by 15%.
Sadly, it wasn't to be. With one exception in mid-2006, Oroton is now trading at its lowest point in the past 10 years. After 2015's earnings forecast was downgraded to $4.5 million (compared to 2014's $13.3m), it's no surprise the stock took a tumble.
The fashion and consumer discretionary sector is phenomenally difficult to be in and it's one of the reasons I never bought OrotonGroup Limited when I had the opportunity last year.
With Australian wages set to fall and unemployment expected to rise over the coming years, I also can't see consumer discretionary business getting any easier. I do expect OrotonGroup to stage something of a turnaround, but it's not a buying opportunity.
