Deciding which stocks to invest in is never easy. Doing so after the FTSE 100 has dropped by nearly 10% in a matter of weeks may make it even more difficult. However, there remains a number of sectors which could offer high growth potential at a reasonable price.
One example is mining. It’s been relatively unpopular in recent years, with commodity price falls causing profitability across the industry to come under pressure. However, with the prospects for a number of miners now improving, this could be a good opportunity to invest in these two related shares.
Improving outlook
Releasing an exploration update on Wednesday was gold miner SolGold (LSE: SOLG). The company reported that two diamond drill rigs are set to mobilise in March, with the target for drill testing being the Aguinaga prospect. It’s a highly prospective copper gold porphyry target that has required a detailed assessment since the discovery of the outcrop. However, progress has been made and five high-priority drill targets have been identified. In the company’s view, they are compelling due to the coincidence of diagnostic anomalies in key supporting datasets.
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Clearly, SolGold is a relatively small business which is highly dependent upon the quality of news it releases. However, its shares could benefit from what may prove to be a purple patch for the gold price. With the risks from higher global inflation contributing to the fall in stock markets across the globe, investors may increase their demand for the precious metal portfolios. In such a situation, gold miners and explorers could rise in value, which may mean that now is the right time to buy for the long term.
Encouraging progress
Also offering upside potential within the mining sector is Anglo American (LSE: AAL). The company has experienced a challenging period, with its profitability coming under severe pressure. However, this provided it with the opportunity to make major changes to its business model. It has made several asset disposals as it has sought to become more efficient and streamlined. This is expected to lead to improved profitability over the long run.
Despite this, Anglo American continues to trade at what appears to be a discount to its intrinsic value. For example, it has a price-to-earnings (P/E) ratio of 9.8. This suggests that investors remain cautious about its future prospects. But with dividends having recommenced following a suspension, the company’s management team seems to be upbeat about its future profit potential.
Certainly, commodity price falls could hurt the stock’s performance. And while the outlook for the global economy remains upbeat, there is no guarantee that prices will rise. But with a wide margin of safety and an improving business model that seems to be more sustainable, the company’s shares could deliver capital growth in the long run. As such, now could be a perfect time to buy them.
