For some time, mining companies thought diversifying their portfolios was the best way to improve cash flow stability and protect themselves from natural resources cycles and increased volatility. That hasn’t worked, at least not as expected.
Industry consolidation and recent pipeline approvals are encouraging developments for Canada’s oil-sands operators, but investors should continue to focus on quality and only buy when the price is right.
In an environment where oil prices range between $40 and $55 per barrel, North American short-cycle plays will remain the growth engine for the oil-field services industry. Investors might want to consider nibbling on select US-focused service names while keeping some powder dry in case oil prices swoon once again.
US oil production appears to be bottoming, but investors seeking to profit in an environment where prices will likely range between $40 and $60 per barrel must pay attention to basin-specific trends as well as companies’ balance sheets and acreage quality.
Mining stocks have moved to a momentum-driven phase, a change that suggests it’s time to close positions and book profits. In the meantime, oil prices and global growth are two critical factors when considering new investments.
Concerns about slowing economic growth in China, coupled with supply overhangs in many key commodity markets, have weighed on share prices in the mining industry. But bargains abound for income-seeking investors with the patience to wait for a recovery.
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