Stay overweight metals
Posted: September 04, 2009, 11:55 AM by Jonathan Ratner
network.nationalpost.com
A massive advance of more than 330% for the the Canadian diversified metal group this year may have pushed its valuation into overvaluation territory, but Dundee Securities portfolio strategist Martin Roberge recommends staying overweight.
“Not only is a re-rating coming, which should dissipate overvaluation concerns, but the cyclical advance in metal stocks should persist as the increase in metal cons developed economies,” he told clients.
The diversified metals group trades at 15x 12-month forward earnings per share and at a 20% premium to the S&P/TSX composite. Such an overvaluation premium was last seen at the beginning of 2004, which also marked an interim peak in relative price performance, Mr. Roberge noted.
The difference this time though, is that equity analysts are much less euphoric. In fact, 12-month forward earnings growth for the sector is still in negative territory and commodity-price assumptions are well below current spot prices for most key metals.
As a result, the strategist said it is wrong to think that current valuation risk is as elevated as in 2004 when commodity and earnings growth assumptions were inflated.
In terms of fundamentals, he highlighted strong Chinese apparent consumption of base metals and an anticipated recovery in U.S. primary metal consumption in the first quarter of 2010 at the latest. |
