Lachlan McPherson |
2011 has started with a bang. Never would we foresee the series of events that has unfolded in the first 3 weeks of the trading year. Floods in Queensland, Floods in Victoria, A world coal supply shortage and squeezing commodities prices as the steel mills of the developing world continue to run at full steam.
The overall themes remain the same. Support for materials based stocks remains strong, trading opportunities continue to present themselves and this most recent string of events seems to close some doors and open others every time we turn on our ProfitSource Software.
Coal mining and insurance stocks seem to have worn the brunt of the media slathering in the wake of the Queensland floods. Whilst both may present opportunities of a rebound, it is the miners which remain in a far better position. The coal is in the ground. The mines will swing back into operation. Buyers will still be lining up to purchase Queensland coal, all at inflated prices due to the most recent shortage in seaborne coal supply. Some Queensland based stocks have dropped by as much as 15%, yet the fundamentals remain the same. Sure, the most recent string of events has affected balance sheets and costs remain even when the mine is in production, yet, there is still money to be made. In hindsight, the most recent string of events will be no more than a minor blip on the radar of coal production. Expect production to return, and return in force.
click to enlarge
Insurance stocks on the other hand don’t seem to represent the same risk adjusted opportunities. Costs of damages are expected to be high, even with existing re-insurance policies. Add to that, the potential of further wet weather, bush fires and other unpredictable natural events, the reward premium would want to be much higher than that of coal stocks. There will certainly be a point where insurance stocks rebound and return traders a handsome profit, but the potential downside is still large and risks need to managed closely. -It is possible to catch a falling knife, but that knife edge can be very, very painful!
Choose your trades wisely, always conduct thorough analysis and enjoy the year ahead!
Stay ahead of the game,
Lachlan McPherson
|