Basic Instinct - Searching for low-cost plays:: Macquarie Research,

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Basic Instinct
Searching for low-cost plays
Event
􀂃 Global markets and Commodity-related stocks have plummeted over the past
few weeks. Concerns about growth in Europe and the US have fuelled the fall
and in many cases these concerns are very warranted. While fundamentals
are not the focus for most investors, 2008 showed us that sensible buying in
these sorts of markets can yield very large returns.
􀂃 We have screened stocks in the Asian and Australian commodities markets
for the following:
⇒ Low-cost operators – Low-cost operators are best-placed in a falling
commodity-price environment.
⇒ Low-valuation stories – Looking at both PER and NPV analysis; PER
will be less relevant if earnings come under pressure.
⇒ Potential M&A stories – With stock prices falling and with balance
sheets strong, we would expect to see a continuation of this theme.
􀂃 We have also reviewed previous highs and lows that were seen in 2008.
Clearly, underlying market conditions have changed since 2008, but it is
interesting to look at the potential downside that some markets and stocks
face. We believe markets do still have further downside attached to them, but
timing in relation to entry is critical and something we are focused on.
Post-screening – key stocks to focus on
􀂃 Based on our analysis, there are a number of stocks in each region that look
attractive. The market is likely to continue to be very volatile over the next few
weeks, so focusing on higher-quality names that are low-cost operators will be
critical. This list provides investors with some ideas and while valuation
support is difficult to gauge, there are some good opportunities out there