For the first time in several years, mining stocks stood out from the crowd, not because they performed particularly well, but because they held their ground in a global sell-off that knocked most other sectors for six.
Technology stocks were particularly hard hit as investors asked overdue questions about cash flow, profits and the sustainability of a business based on a few lines of computer code that can be easily replicated by a rival.
Inquiring about profits and how recent deals, such as the $US2 billion paid by Facebook for Oculus Rift, a maker of virtual reality headgear, can be justified using any form of fundamental valuation was the pin that pricked latest technology bubble.
Much worse is to come for the technology sector, and its close relation, biotechnology, where nonsense claims of the sort seen in the tech-wreck of the late 1990s have first excited investors - and then impoverished them.
Mining has also its moments of excess thanks to the common thread linking all parts of the financial market; greed and fear.
For the past few years the mining sector has been dominated by fear as a great unwinding has worked its way through an industry suffering from overblown valuations and surreal expectations.
On the other wide of the equation, technology stocks have been driven by greed, until a few weeks ago when fear of being the last investor left holding a bag of hot air took hold.
As an example of what happened last week, consider the heavy share price falls by stocks such as Facebook, TripAdvisor and Yahoo. Then compare them with the small price rise enjoyed by Rio Tinto, the flat share price of BHP Billiton, and the flat metals and mining index on the Australian stock exchange.
Facebook lost 5.2% on Friday alone. Yahoo was down 4%. Since mid-February, the biotechnology index on the Nasdaq market has fallen 19%.
What happened last week will have people a lot smarter than Dryblower asking whether the investment world has flipped, and whether we are about to see the start of a rotation of funds out of the once-hot tech sector back into areas of the market with justifiable valuations.
Perhaps, is the only safe answer, but it’s a perhaps that is leaning towards the positive thanks to what’s going to happen this week when the world’s biggest mining companies file their latest quarterly reports.
First cab off the rank will be Rio Tinto, which is scheduled to file its quarterly production report tomorrow. BHP Billiton follows on Wednesday.
Neither company will be talking financial results, but other people will. How interesting it will be to compare the rock-solid profits being projected for the big miners with the appalling losses being racked up by some of the big tech stocks.
With dud deals of the past written off, such as Rio Tinto’s $40 billion wasted on the acquisition of Alcan, the way is clear for the big miners to become genuine cash cows, spinning off huge profits, and rewarding investors with fat dividends and share buy-backs.
According to recent investment bank reports, Rio Tinto will report slightly weaker quarterly production numbers, largely because of weather issues.
But offsetting the tonnage declines will be the beneficial effects of reasonable commodity prices leaving Rio Tinto on track to generate $47.5 billion in revenue in the current calendar year, post a pre-tax profit of $21.4 billion, and boost its annual dividend from $1.92 to $2.10 a share.
Little wonder that the consensus view of eight top investment banks is for Rio Tinto’s shares to rise 25% over the next 12 months to about $A80.20, with UBS leading the way with a $90 price tip.
BHP Billiton’s quarterly will also produce solid production numbers, which will be fed into financial forecasts for the June 30 financial year. These include revenue of $US67 billion, a pre-tax profit of $33 billion, a dividend increase from $1.16 to $1.20 a share – and a consensus share price forecast of $A41.50, an increase of 10.3% on the stock’s latest trades.
The small end of mining is obviously not travelling as well as the big end, a fact that will become clear as the walking wounded of mining’s minnows file their quarterlies and confirm just how broke they are.
It’s at the top end where mining will shine, especially when compared with the “hollow men” of the tech world. Once investors start to compare companies producing commodities in demand with nonsense tech products, they will start to shift their funds back into mining.
It may seem like a long shot, but Dryblower suspects the keenly awaited mining recovery is underway, aided by the overdue collapse of a rival sector – just as it happened when the 1990s tech wreck gave way to a mining boom.
