Prospects appear to be mixed for resources stocks. Oil and gas stock prices rose at a strong pace in 2016 and, assuming the oil price remains in the US$50-a-barrel range, there still are undervalued stocks in this industry. Base metals stock prices also rose last year, but further improvement is anticipated for specific metals only, such as zinc. Prospects are lacklustre for gold stocks, which tend to be countercyclical and do best when markets are concerned about economic or political risk.

Benoît Gervais, senior vice president, investments, and head of the resources portfolio team at Mackenzie Financial Corp. in Toronto, particularly likes companies whose prospects are tied to growth in commodity volumes rather than the underlying price. “It’s the only way to win,” says Gervais. “You can’t predict the price, so you need companies increasing volumes over the full business cycle to ensure earnings-per-share growth.”

Unpredictability in oil prices is the case at the moment. The drop in price to below US$30 a barrel last winter was very chilling. The drop wasn’t based on excess supply, which was the reason for the plunge in prices in 2014; rather, prices dropped on fears that China might have a hard economic landing, which would substantially reduce that country’s demand for energy.

On the supply side, the big swing factor is U.S. shale-oil production because there are large reserves and wells can be productive within months of being drilled. Shale-source oil generally is profitable at US$50 a barrel, but that is not enough to create a big jump in production. When the oil price reaches US$60 a barrel, companies really increase their drilling.

So, the trick is to keep the price between US$50 and US$60 a barrel. Lower-cost producers are aware of that strategy and are adjusting their production to keep the oil price in that range.

The situation in base metals is different: demand can be volatile, but supply is more predictable. Base metals are used heavily in cyclical industries, such as industrial production, housing, autos and other consumer durables. Supply comes from large mines, so the opening or closing of one or several mines can produce excess supply or shortages that can last for years, given the time that bringing a mine into production takes.

Zinc was in tight supply in 2016 and is expected to remain so through this year. There’s also a potential price upside for metallurgical coal and iron ore. Copper supplies, however, are likely to remain ample until the closures of several mines in 2018.

Gold is primarily demand-driven. There are two main uses of this precious metal. One is for jewelry, for which the growth is mainly in emerging economies – particularly China and India, where gold jewelry is a visible sign of household wealth. The other use is as an alternative asset class for investment purposes and as insurance against drops in the value of other assets. Because there are not a lot of concerns about dropping asset values in the wake of the election of U.S. President Donald Trump, the price of gold is likely to be range-bound between US$1,100 and US$1,300 per ounce.

Here’s a look at three resources industries:

Oil and gas. Gervais, in line with his strategy of limiting exposure to commodity price movements, likes U.S.-based Williams Companies Inc., the largest carrier of natural gas to the U.S. East Coast. Gervais expects volumes to continue to grow for several more years.

Joe Overdevest, leader of the Canada-focused equities institutional strategy team at Fidelity Canada Asset Management ULC in Toronto, agrees with Gervais’ approach. One of Overdevest’s picks is Dallas-based Texas Pacific Land Trust, which receives royalties for wells drilled on its land and has little operating or capital costs. Texas Pacific has very high free cash flow (around $3 a share) and has been using that cash to buy back shares.

Another option in this industry is turnaround situations. Craig Bethune, leader of the global natural resources equities team at Manulife Asset Management Ltd. in Toronto, points to U.S.-based exploration and development company Anadarko Petroleum Corp. This company had too much debt when the oil price plunged and has been “fairly aggressive” in selling off non-core assets to pay off debt and selectively adding to its portfolio. The company now is able to target fairly strong growth and is generating free cash flow, but Anadarko shares still are trading at a discount to the shares of the company’s peers.

Nuvista Energy Ltd. is a Calgary-based natural gas company focused on the higher-priced liquid end of that market. Nuvista also has turned itself around, focusing on core properties and benefiting from the “quite dramatic” drop in costs, Bethune says. Nuvista’s revenues are growing by about 20% a year, but the shares’ valuation is only about half of the “pure” plays in the U.S.

Base metals. A way to play zinc is by investing in Sweden-based Bolidin AB, which operates smelters and mines, including zinc mines. Bethune says Bolidin has a solid balance sheet, strong free cash flow, pays a dividend and the shares are trading at a discount to those of the firm’s peers.

Another possibility is Australia-based South32 Ltd., spun off from BHP Billiton PLC in 2015. South32 focuses on aluminum, manganese, metallurgical coal and zinc. Bethune says South32 has a strong balance sheet, is net cash positive, generates free cash flow and is “very well run.”

Peter O’Reilly, head of the global equities team at I.G. Investment Management Ltd. in Dublin, thinks there could be an opportunity in iron ore: “The market thinks there’s a lot of supply and expects the price to fall to around US$50 per metric tonne from the recent US$80. Every month that doesn’t happen, earnings will be up more than expected.” O’Reilly thinks Rio Tinto PLC is a good way to play this opportunity.

Copper prices aren’t expected to move much this year, although Darren Lekkerkerker, portfolio manager at Fidelity in Toronto, thinks supply may not be as ample as expected. He notes that Chile’s production has been weaker than expected and there could be labour strikes.

Lekkerkerker’s favourite copper stock is that of Vancouver-based First Quantum Minerals Ltd. It has long life, low-cost assets, one of the best management teams in base metals and projects that will significantly increase production by 2020.

Another of his picks is U.S.-based Martin Marietta Corp., which supplies aggregates and heavy building materials. The stock is not cheap, but the market is a very high-quality business. “I’d much rather own a wonderful business at a fair price,” he says, than a risky company at a bargain price.

Gold. Bethune likes Toronto-based Agnico Eagle Mines Ltd., a lower-cost producer that operates in relatively politically safe regions and has a strong balance sheet. Agnico Eagle keeps cost down by doing its own drilling. The firm invests in junior companies and buys out the successful ones.

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