Slump offers bargains for investors

Some unloved stocks are now a third of the price that they deserve to be and the sharemarket rout presents bargains for retail investors and corporate predators, analysts say.
Cheap sharemarket valuations have led to strong merger and acquisition activity, particularly in the resources sector. The most recent example is the Lihir Gold/Equigold combination announced on Friday, and a takeover bid by Indophil Resources for Lion Selection announced on Thursday.''And we're going to see more of this, there is no doubt,'' said independent analyst Peter Strachan.
CopperCo, which is merging with Mineral Securities, was a prime example of a company now priced at a third of its value, he said.
Mr Strachan said many companies were trading at bargain basement, bottom-of-the-cycle levels.''They're probably 3-5% from the bottom in any continued downward movement, which I think we're going to get,'' Mr Strachan said.''The stocks that stick out are property developers and property trusts, and also financials: the main banks, Suncorp-Metway and ANZ particularly.''Those stocks have fallen 50%.''I know there will be profit downgrades from the banks ... but I still think, if you take a two or three-year view, those stocks are looking particularly cheap.''Mr Strachan said oil and gas producers such as Petsec Energy, Arc Energy, AWE and Roc Oil Company represented extraordinary value.''Petsec ... would spit out the same amount of cash as you would pay to buy the company in about 14 months.''While not yet producers, oil and gas explorers Otto Energy and Nexus Energy were also good value, he said.''Any company that's got oil and gas assets, as opposed to undertaking pure exploration, looks cheap.''Mr Strachan said the energy sector had lost favour with investors due to a lack of recent exploration success and operational woes at projects including AED's Puffin field and the Anzon Australia-operated Basker Manta Gummy joint venture.
Mr Strachan said a string of high-profile dusters - dry wells - included Adelphi Energy's Sugarloaf project in the US and others in Mauritania and China's Beibu Gulf.He said some companies servicing the resource sector offered better value than others, with GRD, RCR Tomlinson and Monadelphous Group being the top picks.Among this sector, the most expensive stocks included United Group, Leighton Holdings and WorleyParsons, he added.
He said BHP Billiton and Rio Tinto, which comprise 20% of the S&P/ASX 200, were highly priced.''If Rio goes back to $80 and BHP goes back to $28 to $29, we'll see this market back at 4800 points, and that's when I'd be looking to pick up some stock.''.
In a research note today, brokerage DJ Carmichael said the companies that were merging were acquiring targets with large sums of cash.''This makes sense in these difficult times of raising debt to build large projects,'' the brokerage said.As for future M&A targets, DJ Carmichael singled out Murchison Metals and Mount Gibson Iron Ore as potential targets.Murchison has cash and liquid investments of about $190 million and Mount Gibson, $120 million.
DJ Carmichael also pointed to Troy Resources, a 60,000-ounce-a-year gold producer with $80 million in cash and an enterprise value of about $100 million.Not only are companies including Moly Mines facing deferred project development as financing arrangements become increasingly hard to complete, new floats were drying up, DJ Carmichael resources analyst James Wilson said.
While retail investors should be making the most of the current fire sale, they remained averse to risk, Mr Wilson said.
There were ``bargains galore'' to be had, he said.