Broker snap: Nomura names BHP Billiton as top pick of the miners

11th Dec 2012 10:09

Nomura has labelled BHP Billiton as its preferred name in the global metals and mining industry, reiterating its 'buy' recommendation and 2,350p target price for the shares.In Nomura's sector review, analyst Sam Catalano said: "With the broader market showing little conviction on where the global macroeconomy is headed, we believe that many commodity prices will trade sideways (albeit in a volatile fashion) for the foreseeable future."He said that he favours markets in which supply is still tight relative to demand (such as copper, iron ore and gold) and believes that metals in oversupply (steel and nickel) may struggle. While the end of surging commodity prices is over, Nomura doesn't foresee an imminent collapse with supply still constrained."We believe it is time for a change of mindset in terms of how many in the market view the sector. Although we think trading short-term beta rallies will still be a way to achieve returns, these will tend to be short-term directional trades. Looking through these, we believe those stocks that can reliably generate alpha will be the winners over the longer term."The broker recommends not to look for short-term opportunities in valuation metrics ("to trade a re-rating/de-rating in the multiples") but to go in search of earnings growth over the long term.As such, Nomura said that its preferred stocks in the sector on the basis of alpha generation are BHP Billiton, Rio Tinto ('buy') and First Quantum Minerals ('buy'). However, Catalano said: "If we had to choose one stock in which to invest in this sector, BHP Billiton stands out."In contrast, the broker has downgraded its rating for both Antofagasta (from 'buy' to 'neutral') and Kazakhmys (from 'neutral' to 'reduce') on the basis of lower expected growth.BC