Who wins and who loses in the COVID-19 crisis?

Richard Hemming

At Under the Radar Report it has been fascinating watching the iron ore price defy gravity, remaining at historically high levels. We go into detail below, but this highlights that it is impossible to generalise too much in this crisis. We are now firmly in the realm of stock picking realities. You cannot expect to simply buy a market linked ETF and think that everything will be okay.

In tomorrow’s Under the Radar Blue Chip stock Report we focus on resources companies, which include the iron ore majors Rio Tinto (RIO), BHP Group (BHP) and Fortescue Metals Group (FMG) as well as Origin Energy (ORG) and base metals mining group South32 (S32)

What to change in your ASX share portfolio

As an investor, it's hard to keep a balanced portfolio as you buy and sell your ASX shares.

We have a Blue Chip Value Portfolio Review in our stock report tomorrow, which of course includes all the ructions of March. It makes interesting reading and is essential to help you position your Blue Chip Portfolio in these volatile times. 

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Taking profits as an ASX investor 

At Under the Radar Report, our trading advice remains consistent across our Blue Chip and Small Cap stocks for our subscribers to take profits recommendations on ASX stocks that have climbed between 30% and 65% in the past month. One month is a long time in the COVID-19 world. Back when the ASX share market was dropping fast our advice was for ASX investors to buy quality shares in small parcels and that has proven to be the right strategy. Now our advice is to take profits on your winners.  Basically, a rule of thumb is that if your profit doesn’t exceed 20% we don’t think it’s worth engaging in a sell transaction.

Minging ASK stocks holding up with a strong iron ore price

Australian iron ore giants BHP Group (BHP), Rio Tinto (RIO) and Fortescue Metal Group (FMG) are ASX stocks that have held up particularly well given the current COVID-19 related turmoil, despite being global cyclicals, or stocks leveraged to economic activity around the world. It's certainly surprising in a COVID-19 environment. You would think that their ASX share prices would drop as global economic activity plummets.

The fundamental driver is the resilience of the iron ore price, which at US$84.50/tonne is below its US$120 high late last year, but on a historic basis is still very strong, having been below US$40 in early 2015. 

China Rebooting in the wake of COVID-19

The main factor is China, which accounts for 70% of global demand and where furnaces and construction projects are recovering as the country reboots in the wake of COVID-19. China’s import requirements are 1.1bn tonnes versus 100m for Europe.

Brazilian Suppliers Struggling

Another factor is the ongoing supply problems at the Brazilian giant Vale, which is struggling with permits in the wake of the Brumadinho dam collapse. This comes on top of the coronovirus supply crunch affecting all commodities, but it is especially intense in Brazil.

Australian Iron Ore Producers Powering

Australian producers have not been heavily affected and production remains strong out of the Pilbara at FMG, BHP and Rio TintoFMG is also benefiting from increased market share due to its US$2.6bn Iron Bridge project in northwest Australia, which increases its production quality, and hence margins.

About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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