Leading Indicators for Mining Stocks – Part 3
This is the final instalment of a three-part series on the leading indicators for mining stocks, brought to you by our research department.
The materials sector has continued to underpin the performance of the broader Australian market. It led the recovery back in early 2009, but has weighed on the markets as a result of the uncertainties from the proposed Resources Super Profits tax.
Commodity prices can be used as a leading indicator for share price movements. We have reviewed key mining stocks that are highly liquid and respond well to movements in commodities. Please note that the commodity prices are recorded in Aussie dollar terms.
Previously we have reviewed leading indicators for BHP and last week we reviewed Newcrest. We complete this three-part special by examining our premium energy stock, Woodside Petroleum.
Woodside Petroleum Limited (WPL)
Woodside Petroleum (WPL) is Australia’s largest publicly traded oil and gas exploration and production company and one of the world’s leading producers of liquefied natural gas.
Woodside has operations in LNG, natural gas, condensate, crude oil and LPG. The primary focus is on LNG interests in the North West Shelf Joint Venture (NWSJV) off the Western Australian coast, where production is forecast to grow strongly. The company is well-managed, has a strong balance sheet, oil and gas exposure and outstanding long term growth.
Oil price last traded at $US82.42 a barrel, but in Aussie dollar prices, has been range trading for the past eighteen months (as seen on the chart below).
This chart illustrates the correlation between Oil and WPL prices. We can see that back in mid-2008 the oil price gave confirmation of a pullback in the WPL share price, and reaffirmed the downtrend in late August. While in early 2009, the oil price gave a confirmation of a turnaround in WPL’s share price.
The correlation has held through to the third quarter of 2009. As illustrated the crude oil price has range traded for the past year, while the WPL share price has drifted lower. Oil is now trading towards the upper end of its trading range, so look for the oil price to break out of this trading range for a leading indication of the future direction of the WPL share price.
Commodity prices can be used as a leading indicator for share price movements, however you need to convert the pricing to Aussie dollar equivalents for best results.
Note that it is important to check the US ADRs for overnight share price movements as well.
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By Michael Hevern
Head of Research
You can obtain more fundamental information on Woodside Petroleum on our website.
The information provided within this blog is general advice only and you should consult the services of a financial professional in order to ascertain whether the information is applicable to your investment strategies and risk profile.