If Seeking Opportunities in the Materials Carnage, Remember the Balance Sheet

Resource stocks continue to sell-off. Here are five names to consider if you’re thinking about contributing new capital to the space.

| More on:
The Motley Fool

Talk about being kicked while you’re down!  On the back of weaker than expected Chinese GDP growth, resource stocks are being pounded in today’s market.

Many will see this as an opportunity, and it very well might be.  That’s certainly how I’m programmed to think.  However, nobody knows how long this rout will last.  Therefore, it’s important that we Fools keep the long-term in mind if considering putting new money into the resource space.

Financial Risk Kills

Avoiding the destruction of capital is one of the keys to long-term investing success.  Steer clear of companies that could potentially be forced to severely dilute your ownership stake by issuing equity or worse, are at risk of insolvency because of too much debt.  To evaluate both scenarios and gauge financial risk, focus on the balance sheet.

Tabled below are five companies that have net cash on their balance sheet.  A good thing as it indicates very low financial risk.  Net cash means that the company can pay down all current debt with cash on hand and still have some left over.

Company Name

Total Cash (MM)

Total Debt (MM)

Net Cash (MM)

HudBay Minerals (TSX:HBM)

$1,337

$480

$858

Franco-Nevada (TSX:FNV)

$777

0

$777

Silver Wheaton (TSX:SLW)

$776

$50

$726

Capstone Mining (TSX:CS)

$498

0

$498

Pan American Silver   (TSX:PAA)

$541

$98

$443

Source:  Capital IQ

Foolish Takeaway

Companies that are financially strong at the beginning of a downturn stand to come out on the other side in even better shape.  They are the ones that are positioned to capitalize on the misery of others by potentially adding to their business at discounted prices.  And, even if they don’t add to their business, at the very least, you can sleep soundly knowing they will survive to see the recovery, whenever it may occur.

The S&P/TSX Composite Index is loaded with resource and financial stocks.  Because of this, investors that rely on Canadian Index funds or ETFs severely lack diversification in their portfolio, opening them to undue risks.  We have created a special report that outlines an easy to implement strategy and 5 Canadian stocks that reduce the risks involved with passively investing in the Canadian market.  Click here now to receive “Buy These 5 Companies Instead of Following a Flawed Piece of Advice” – FREE!

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler is short $28 June 2013 put options on Silver Wheaton.  The Motley Fool has no positions in the stocks mentioned above.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Close up of an egg in a nest of twigs on grass with RRSP written on it symbolizing a RRSP contribution.
Dividend Stocks

Turn $5,000 Into a Growing Nest Egg With These Dividend Knights

Explore the world of dividend investments. Discover why dividend knights are key for your retirement portfolio.

Read more »

analyze data
Investing

Should You Buy Emera While it’s Below $65?

Let's dive into whether Emera (TSX:EMA) is a utility stock worth buying right now, or if investors should wait for…

Read more »

A plant grows from coins.
Investing

1 Magnificent Growth Stock to Own for the Next Decade

This magnificent growth stock might be an excellent investment for growth-seeking investors who want to buy and hold a stock…

Read more »

Canadian Dollars bills
Dividend Stocks

Want Year-Round Income? 4 Dividend Stocks Paying Consistently

There are some stocks that are just easy buys, and these four should be some of them.

Read more »

Investing

3 Under-$50 Canadian Stocks to Buy for Superior Long-Term Returns

Given their solid financials and healthy growth prospects, these three under-$50 Canadian stocks are ideal for long-term investors.

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Building a $50,000 Portfolio That Can Weather Any Market Storm

This defensive investment portfolio uses three ETFs to ride out any recession.

Read more »

Two seniors float in a pool.
Retirement

Want to Retire Rich? 3 TSX Stocks to Add to Your Portfolio Now

These TSX stocks could deliver above-average returns in the long run, helping you build wealth over time and retire rich.

Read more »

a person watches a downward arrow crash through the floor
Dividend Stocks

Top 3 TSX30 Winners: Understanding the Recent Stock Drop

Three TSX30 winners in 2024 have experienced price drops this year and continues to underperform due to massive headwinds.

Read more »