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Portfolio matters: Two resource stocks I like

Its a glib to see Australia’s economic future as tied up in Asia and it is difficult to see much alternative to our exports to these countries being primarily resource-based. So let me continue my fun portfolio effort by punting on one resource stock that is primarily agricultural and one which is a miner.

The agricultural firm I like is a major beef exporter the Australian Agricultural Company. It is Australia’s second-oldest firm dating back to 1824. In brief:

• AACo currently operates 24 cattle stations and 2 feedlots.
• 7.9 million hectares (about 1.0% of Australia’s land mass).
• Largest beef cattle company in Australia with 500 staff.
• 524,000 beef cattle.

It’s fortunes are very much tied up to the question of whether US beef exports are accepted back into the Japanese market. Currently they are not because the US broke a Japanese quality control restriction protecting Japan against mad cow disease. Generally I think AAC has a great future given its high quality products and the likelihood that Asia will move vincreasing toward a Japanese life style. I will buy 1500 AAC at Friday’s closing price of $1-66 or $25,000 allowing for $100 brokerage.

My other selection is pretty boring, namely BHP-Billiton Ltd. In the past have I criticised the merger that brought BHP into union with Billiton (there were not obvious synergies) but it is an amazing company. The biggest mining company in the world it has recently experienced slight falls in coal prices but is still making buckets of money from the resource boom. In short BHP-Billiton is:

A leading supplier of core steelmaking raw materials
The world’s second largest copper producer
The world’s second largest exporter of energy coal
The world’s third largest producer of nickel metal
World’s fourth largest producer of uranium
World’s fifth largest producer of primary aluminium
A significant producer of oil and gas

In fact BHP-Billiton is selling at a relatively low multiple of expected future next year’s earnings but people are nervous about the resource boom petering out (I can’t see that happening soon) and about the considerable growth in the share price over the past two years (think about this for a moment, from a fundamentalist position its a silly argument).

I will buy 1000 at Friday’s price of $24-75 costing $24, 850 with brokerage.

My nominal portfolio now stands as:

Gowings $27, 800
Australian Agricture $24,900
BHP-Billiton $24,750

Cash at bank $22,250

Value of portfolio $99,700.

This is quite a conservative portfolio and will not generate huge gains. But I am a fairly conservative investor. That there are only three stocks is less risky than it looks since two of these firms are relatively diverse operations. I’ll consider some more speculative stoocks with the cash that is left but won’t invest it in penny dreadfuls. See how I do!

Disclaimer: This is a fun exercise and not advice on stock purchases. I want to play a trivial (public) game to see if I can beat the market over the following year. I may trade, and/or hold, some of the stocks in this nominal portfolio.

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