Morningstar Advisor - December/January 2012 - (Page 28)

Sector Rap Be Alert for Basic-Materials Bargains By Philip Guziec When basic-materials stocks fall prey to doom-and-gloom scenarios, investors can gain profits that aren’t just cyclical. The basic-materials sector covers a lot of areas, and it’s also highly cyclical. So, I sat down with some of our basic-materials stock analysts recently to discuss where we are right now with the sector and what investors should be looking for if they’re shopping for some basic-materials exposure. Philip Guziec: Basic materials is tough to get your head around from an investing perspective. How do we think about investing in basic materials? When do you want to look at basic materials as an investment opportunity? Elizabeth Collins: You want to start thinking about investing in basic-materials stocks when the market is pricing in conditions that are really bad. These opportunities may be few and far between, but we’ve seen it at least once recently, and we’re maybe about to see another time like that in the near future. An example would be the chance to buy Potash Corp. POT for a price that implies that people will not be using much potash fertilizer ever again. Or an opportunity to buy Freeport McMoRan FCX when the market is pricing in a copper price below $2 a pound from now until forever. We’re not seeing those valuations yet, for those high-quality names, but there are some increasing opportunities in the basic-materials sector now. So, it’s time to start looking at these companies again. Guziec: It sounds like basic-materials/ commodity investing is analyzing the companies, both with respect to cyclicality and with respect to the secular trend for that product. Where are we, in terms of global economic cycles across the major materials groups? 28 Morningstar Advisor December/January 2012

Table of Contents for the Digital Edition of Morningstar Advisor - December/January 2012

Morningstar Advisor - December/January 2012
Letter From the Editor
Seduced by Complexity
Is China Exposure Important for a Portfolio?
A Niche Built on Trust
How to Find Your Client’s Investment Style
Taking the Long View
Consensus on Europe Elusive
Four Picks for the Present
Investment Briefs
Is Perception Reality for Active Managers?
Be Alert for Basic-Materials Bargains
Investment Boom Unsustainable
Digging Moats in China
Where China’s Domestic Companies Stand to Benefit
Arising Opportunities
China Strong Long Term
From Currency Manipulation to International Acceptance
The Keys to China’s Fortune
Wedgewood’s Lessons Pay Off
Reading the Evidence on Indexing
Scouting for Investments Abroad
Yield, Please (Hold the Europe)
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
China Fund Managers Eat Elsewhere

Morningstar Advisor - December/January 2012