It's a perennial question for S&P/ASX 200 Index (ASX: XJO) investors: Which of the major ASX mining stocks should I be riding at the moment?
The sector has underperformed the last half-year as China's much anticipated post-lockdown boom never materialised.
The world's second largest economy has struggled so much, in fact, that it's battling deflation and there's speculation that government stimulus might be coming.
In this context, Shaw and Partners portfolio manager James Gerrish gave his thoughts on which of BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), and Fortescue Metals Group Ltd (ASX: FMG) he would back right now.
'Be patient'
Firstly, Gerrish's team is generally bullish on ASX mining stocks, as they have been for the past six months.
"US CPI has moved the markets' anticipated path for both inflation and [US Federal Reserve] rate hikes which has seen the US dollar make fresh multi-month lows: a bullish read through for commodities and the resources sector," Gerrish said in a Market Matters Q&A.
The China economic stimulus question is, admittedly, critical for investors.
"If we get the much anticipated stimulus out of Beijing, it could really set the miners alight. But similarly if it's less than expected they're likely to struggle," said Gerrish.
"Market Matters believes China will pull the stimulus levers when it's good and ready, as opposed to when global markets hope. In other words, be patient — we believe it will come."
So which of the iron ore giants would Gerrish's team buy currently?
"Market Matters is long and bullish BHP in our active income and flagship growth portfolios, with no plans to take profit in either," he said.
"We like BHP more than Fortescue and Rio Tinto, and would therefore be more inclined to sell FMG and Rio into further strength, while keeping a position in BHP. We think copper has a better outlook than iron ore."
The BHP share price is now pretty much where it started the year, while giving out a handsome 8.6% dividend yield fully franked.
The company is due to give the market an operational update on Thursday.
Earlier this week Morgans senior analyst Adrian Prendergast and Datt Capital chief investment officer Emanuel Datt both expressed their bullishness for BHP as well.
Datt believes BHP's plan to offload the Blackwater and Daunia mines, which are its "non-core metallurgical coal assets", will add value to the stock.
"A clean divestment of these assets is likely to drive quick and material value accretion via a re-rate of BHP's stock price," said Datt.
"For instance, a 1% fluctuation in the market price for BHP represents a move in market valuation >$2 billion."
