boom year for resources

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    STRONG overseas demand for commodities and energy will underpin a buoyant year for resource stocks, analysts say.
    But record stockmarket gains last year have made value harder to pick in other sectors.

    China's insatiable appetite for iron ore, copper, nickel and oil should result in higher commodity and oil prices, fuelling share price rises, according to Mike Kendall, of Goldman Sachs J.B. Were.

    "China is a resources and oil story," Mr Kendall said. "It is going through a process of industrialisation and they [the Chinese] are massive consumers.

    "China's oil consumption is growing at a rapid rate and India is following hot on its heels. Demand for oil and gas in North America and Europe is also gathering pace."

    With house prices flat in most capital cities and unit prices falling in some areas, investors are looking for alternatives and resource stocks seem to be flavour of the month. Rio Tinto, BHP Billiton, Portman and WMC Resources, for example, are all poised to benefit from overseas demand.

    "These stocks are leveraged to a growing global economy," Mr Kendall said.

    "Rio Tinto and BHP are big and diversified with mines all over the world.

    "They have the capacity to meet demand."

    Rio is also poised to benefit from higher iron-ore prices. Meanwhile, strong quarterly production results might prompt a rush of market upgrades for BHP Billiton.

    "Iron ore, copper, aluminium and petroleum met our expectations," Mr Kendall said.

    "Coal production was at record levels and magnesium was 10 per cent stronger than we expected."

    Other miners, such as Portman and WMC, should also enjoy a ride on the back of global demand.

    Share market analyst Michael Heffernan, of F.W. Holst, agreed that the share prices of BHP, Rio Tinto, WMC Resources and Portman were poised to rise.

    "These companies have what the world wants," he said. "Nothing can ever be certain in the share market, but when it comes to risk and reward, our big resource companies offer a solid opportunity."

    Richard Morrow, of E.L.&C. Baillieu, said he expected big resource stocks to report bumper half-year profits.

    "It won't get much better than this," Mr Morrow said.

    Woodside Petroleum, Santos and Oil Search are also well placed this year.

    The price of oil has risen, partly due to a lack of exploration in the past six years, with the resulting supply bottleneck creating a price squeeze.

    The outlook for other major industries such as retail is less certain.

    The Australian economy is performing well but that could be positive or negative for retail. Stiff competition can reduce earnings and higher petrol prices could mean less spending on other items.

    Retailers could also suffer from a rise in interest rates, made more likely last week by stronger-than-expected inflation figures.

    Analysts say investors should form their own view about the economy before choosing retail stocks.

    But opportunities exist, particularly for those taking a long-term view.

    Mr Kendall suggested being more "stock specific".

    "We like Woolworths," he said. "The second-quarter sales result was solid and showed that food and liquor sales had risen by five per cent, while fuel sales rose by more than 60 per cent. It is well managed and has a solid balance sheet."

    Mr Heffernan said the Australian Stock Exchange, SFE Corporation, Computershare and Iress Market Technology also offered opportunities, thanks to the share market boom itself.

    "These stocks have done well on the back of strong share market activity," he said.
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