“The Last Big Resource Play” — Motley Fool’s Australia Fave

By Travis Johnson, Stock Gumshoe, March 11, 2011

The Motley Fool Global Gains folks recently went to Australia on a stock-finding trip, and they came back with a few recommendations for their subscribers that editor Tim Hanson is also teasing for the rest of us — with an eye, naturally, to adding to those subscriber rolls.

And certainly, Australia has been one of the huge winners of the “commodity super cycle” that’s been going on for a while now, with lots of coal, gold, natural gas, manganese, copper, uranium … well, pretty much any commodity you’re looking for, as long as you aren’t totally focused on oil. That’s also made for a pretty robust economy, and a very strong currency, particularly over the last year or two as China’s commodity supermarket has shown a rapid recovery from the global economic bust.

So I thought, even though this coincidentally makes two Fridays in a row that I talk about Motley Fool picks, that you might be interested to know who the Global Gainers are picking. So let’s see what they’re saying, shall we?

“In my view, increased capital spending and the supply it will invariably spawn will come back to bite the major mining and exploration companies. Why on Earth would we take on that risk at today’s valuations?

“Especially when we can invest in one overlooked group of companies that stands to profit even more from the tightening supply/demand imbalance — AND can continue to make money over nearly the entire course of the commodity super cycle.

“You see, rather than take on the risk and expense of trying to feed China’s insatiable hunger for resources — these nimble, capital-light companies supply the “picks and shovels” the major mining operations rely on to do the heavy lifting.”

So we’re looking not at BHP Billiton and Rio Tinto, probably the most well-known global Australian commodity companies, but at some small caps who, one assumes, probably supply those two giants and their competitors. We’re told that the reason that these global investors have been able to find great stocks at good prices is that they’re looking below the surface, avoiding the most massive large caps who dominate the indexes of most countries — and who get the attention of most analysts not just here in the US, but around the world. Here’s how Hanson describes the situation that makes him want to focus on smaller and uncovered companies:


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