Company Interview / Ripping resources

Key points:

Shift from banking to resource stocks driven by Chinese stimulusMicrosoft’s nuclear deal boosts uranium stocks Fortescue Metals and Mineral Resources gain amid market trends

James Gerrish from Shaw and Partners at Market Matters sees a shift from banking to resource stocks due to recent Chinese stimulus. The People's Bank of China’s liquidity measures benefit resource stocks, leading to a change in market trends. BHP (ASX: BHP), in particular, shows a positive differential.

James discusses his bullish stance on resource stocks, including BHP, alongside holdings in copper and coal stocks. Freeport excels internationally, and Whitehaven Coal (ASX: WHC) enjoys a good session. Microsoft's (NASDAQ: MSFT) contract with the Three Mile Island nuclear plant spurs uranium stocks, highlighting the importance of baseload power for AI and zero emissions.

In other insights, Fortescue Metals' (ASX: FMG) recent bounce in iron ore prices drives its share price up despite a significant deal announcement. Mineral Resources (ASX: MIN) also gains on less negative news, making it a highly leveraged play in lithium and iron ore. Retail stocks face headwinds with Premier (ASX: PMV) and CMD (ASX: CMD) showing weaknesses.

Full unedited transcript below:

0:00

Let's check what is moving on our markets. James Gary is joining us from Shore and Partners in Market Matters. James. Good to have you back on the show. Um, of course it's all about China, isn't it? Those, uh, that stimulus we saw yesterday. And as a result, we have seen that that switch from banking stocks into the resources that's continuing today how you're seeing it.

0:22

Yeah. Good morning to you, Andrew. It is a big change of trend in recent time. So uh yesterday CBA v BHP there was a 6% differential in the performance of those two stocks. So it's been going the other way for the last year or so. So it's uh it's nice to see a bit of a change if you're set in the resource space. So wide ranging changes from the PBoC. Uh, yesterday it was all about liquidity. So you know ultimately liquidity drives markets. And uh, this those measures yesterday improve the liquidity. And therefore the stocks in that area should be a net beneficiary. It should prompt short covering, uh, and change the thesis to be uh, net short resources, I would imagine. Which stocks are you looking at, James.

1:06

Well, you can go I mean right across the sector. So BHP you start at BHP. That's the biggest, most diverse. Um largest or second largest index right here in Australia. But then you go down the um, go down the size spectrum. So, uh, you know, resource stocks we own and continue to be bullish on sapphire in the copper space. Um, uh, we've got Freeport in our international equities portfolio that had a really strong night, up about 8% last night. Um, we still like coal stocks. Whitehaven had a really good session yesterday. Uh, and then in the more junior end of the market. So obviously uranium stocks um have started to bounce. There's a couple of bit of a few news snippets that are um outside of the PBoC move yesterday that supported uranium stocks. But I think, you know, being in resources at this current point in time the market's still bearish. The market's still underweight relative to big overweight towards the financial stock. So uh we like playing the contrarian end of the market. And resources are still that way. Even though they've had a big

2:06

bounce in the last 24 hours. Well let's let that fly around those uranium stocks because you get that news at the beginning of the week that Microsoft had, uh, signed that contract, um, to source their power for some 20 years from the Three Mile Island nuclear plant in Pennsylvania. Was that was that the trigger in the most recent moves?

2:26

Yeah. It is. Um, I think it brings a couple of things to the fore. So, uh, obviously the first one is, um, uses a lot of power. Um, so, uh, you need a lot of power to, uh, underpin the big rollout of AI globally that's taking place. Um, and simply that we need baseload power. So uranium is a great source of baseload power. And also that, um, you know, the companies that are involved in AI and data centers, etc. want it to be renewable, want it to be, um, uh, zero emissions. So, uh, that speaks to, you know, that that brings uranium right to the fore. The other thing is around Microsoft signing a 20 year deal. I mean, this is a it's a big move. Um, it's a it shows the their view around the longevity of what they'll need in terms of, um, uh, power consumption. uh, and it shows a, um, I guess, backing of nuclear over and above anything else. I know there's some great leaps and bounds in renewables, solar and wind

3:26

and other areas. Um, but there's nothing to satisfy these baseload power requirement that we, um, need in, you know, the global, um, uh, decarbonization, the global change in, um, energy consumption. And I guess the increase in energy consumption underpinned by, um, AI and data centers. And like

3:46

now, James, you mentioned those moves in the iron ore stocks, in particular, Fortescue Metals. Uh, well, I should say not metals. Uh, it has of course, it come off significantly this year. Good balance yesterday. It's also signed a $2.8 billion deal with, uh, an equipment maker to develop zero emission mining solutions. What do you make of that?

4:10

Yeah, I mean the stock's up 3% today. It's trading at 1855 at the moment. Um that move is predicated on the bounce in the iron ore price. The iron ore prices rallied 5%. So you know you'd expect Fortescue to, um, you know, be up on on that. I don't think the news around, um, uh, it's a big contract. It's nearly $3 billion worth of mining equipment, um, which is, you know, obviously building on an agreement they signed prior. Uh, that's a good you know, it shows their focus, uh, on getting to, um, net zero, which are many companies in Australia and globally are committed to doing so. Um, it's all about the iron ore price. So in terms of Fortescue, I wouldn't think the share price is moving on that contract announcement. It's all about what is playing out in China. Um, you know, iron ore has been week. The market is bearish on iron ore. You know, consensus price expectations over the next 12 months for iron ore, a sort of mid 80s. Um, um, the price is now around 100 bucks a tonne. So you're going to even if

5:10

the price stays here, you're going to see these begrudging upgrades of earnings expectations coming through from analysts on the likes of Fortescue, BHP, Rio and the and the rest of them. So, uh, to me I think that yeah the the market is bearish this space and it leads to the prospect of bigger rewrites on the upside. Seen it from men as well as an example there. Well, it's just to that point, in fact, because we've seen lithium move as well as iron ore. And clearly that's where Mineral Resources sits. Plus it's got some news as well.

5:42

Yeah they do. They're up another 5% today. So you know two weeks ago they were trading sub 30. They're now 41 bucks today on this less bad news coming out in terms of the company. So they've just said all their Onslow um all roads. So they've got 1.1 billion bucks coming in the door that'll, um, alleviate some balance sheet stress. That's not new news. That was well known by the market. Um, but if you get it's it's one of the most leverage plays on iron ore and lithium. Um, there is on the ASX at the moment. So if they can muddle through in terms of their balance sheet, then there's huge upside in that, that that company over the next 12 to 24 months. So um, you know there's different us initially around how to play resources. There's different risk profiles to play in that. So more leverage plays. Um, then we'll have more upside, uh, more downside when things don't work, but more upside when they do. So mean would be a highly leveraged play on that. Um, you know, the uranium and lithium. Sorry. The lithium and iron ore space,

6:42

not uranium yet, I don't think. Yeah. All right. Uh, James, just before I let you go, we got a couple of company updates today in the retail space. And, look, it has faced some real headwinds there. Have you seeing it?

6:56

Yeah. Haven't only briefly looked at that. The result looked okay. Slightly soft. Um, Trading's continued to be fairly, um, lackluster. Um, you look at the chart there that you're showing on the screen, there's not a lot to like about CMD. And then Premier is out with an update today. So, uh, full year results, miss, uh, expectations. And they're also delaying, um, the, uh, the merging of Smiggle. So that's not not good news for Premier down 8%. Um, you know further weakness that'll start to actually look attractive. But there was a lot of optimism building the Premier on the basis of, you know, unlocking value out of their brands. And that's not happening along with a weaker than expected result today.