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)




Franco-Nevada (TSX:FNV)




Silver Wheaton (TSX:SLW)




Capstone Mining (TSX:CS)




Pan American Silver   (TSX:PAA)




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

Oil pumps against sunset
Energy Stocks

Is it a Good Time to Buy in the Energy Sector?

Boosted by a very bullish supply/demand environment, energy stocks like Canadian Natural Resources and Tourmaline have much further to go.

Read more »


2 Stocks to Buy Offering Better Value Than Air Canada

Air Canada has been a popular stock for years, but despite its low price, these two picks are much better…

Read more »

money cash dividends

How to Make $373/Month in Passive Income With These 2 TSX Stocks

You could bring in passive income of $4,482 annually, or $373 per month!

Read more »

clock time
Stocks for Beginners

3 Stocks to Start Investing Today

Looking for a set of stocks to start investing today? Here are some great options that offer growth and income…

Read more »

investment research
Dividend Stocks

Young Investors: Create Cash Flow With This Top Dividend Stock

If you're a young investor looking for cash flow, you need a strong dividend stock and solid banking program designed…

Read more »

Illustration of bull and bear

Is the Stock Market Selloff Over?

Throughout this week, many stocks have been gaining value and rebounding from their lows. So, is the stock market selloff…

Read more »

potted green plant grows up in arrow shape

Retirement 101: How Investors Can Turn $20,000 Into $500,000 in 25 Years

These top TSX dividend stocks have made some investors rich.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 Superb Dividend Stocks I’m Ready to Buy

The market is full of great options for income-seeking investors. Here are three superb dividend stocks to buy now.

Read more »