3 of the Best ASX Resource Stocks to Buy Now
By Jason McIntosh | Published 5 April 2022
Today, I’m going to tell you what I think are three of the best ASX resource stocks to buy now. One is in gold, another is in uranium, and the last one is a mid-tier iron ore miner. And they all have big upside potential, and what I think is relatively low risk. As always, this is general commentary and doesn’t take your personal situation into account.
All right. With that said, let’s get to our first chart. Okay, so I want to begin by setting the scenes for gold. This is a chart of the gold price we have on the screen, and I think gold is looking really interesting. It broke higher here from this 12-month trading range which had been containing the price. We had the breakout, and we had an initial run higher with a strong fast move up towards gold’s all-time high. And I think this move up here got a lot of people excited. There was talk of inflation, there was the war in Ukraine is going on, a lot of geopolitical tension. But gold didn’t follow through. Gold then had a sharp by 10%.
And now, that would worry a lot of the gold bulls. But I think this is actually a good thing. And that’s because it shakes out a lot of the latecomers to the rally, and it also gives gold a chance to establish new support at a higher level. And that’s what it’s done. It’s establishing support around $1,900.
And now, this is really important here. I think this level here is the key to gold’s near-term outlook. It really needs to hold its footing in here and now to keep its bullish prospects alive for the near term. And if it does do that, I think it really does set up the potential for another retest of the all-time high at just above $2,000. So, if it holds, I’m looking for gold to make a move higher over the next few weeks, next few months. That’s the potential if it holds at around these levels here. So that’s really the key to it all.
And if it fails here, well, then it comes back into this range and it puts the bullish case on hold. But at the moment, we’ve got a breakout in the gold price. And I think we need to give that breakout the benefit of the doubt, and I think we need to run with gold. So, having said that, what are the opportunities? Where are some of the plays in gold?
Well, one of the ones which I really like is Evolution Mining, ticket code EVN. Now, I could be profiling any of the big three Australian-listed ASX gold stocks, Northern Star, Newcrest, and Evolution because they’ve all got a very similar chart profile. And the same goes for a lot of those mid-tier North American miners. They’ve all got this similar chart profile over the last…look, over the last 18 months to 2 years. Now, looking at this chart of Evolution over the last two years, it doesn’t look too flash. There’s been this steady declining trend. But what this chart doesn’t show is the six years prior.
So let’s jump to a weekly chart briefly, and it puts see this into perspective. So what you can see when you look at the weekly is Evolution has had a really strong bullish period over a number of years as has the gold sector generally and the gold price. What we’ve seen over the last 18 months to 2 years has been a large consolidation and correction of this rally. And it’s interesting if we put some Fibonacci retracement levels on. So these are really interesting retracement levels that a lot of traders use to give an idea of where a stock could pull back to.
When we measure out this move from the low to the high, we see that this two-year consolidation/correction has come right back into this Fibonacci pocket right around the 50% retracement. So far, this is very much textbook. It takes time, but it is textbook the way it’s been playing out.
So let’s go back to our daily chart and talk more about the opportunity here. The key feature on this chart are these two converging trend lines which I’ve drawn. Now, this is called a bullish-wedge formation, and these formations often appear near the end of a bearish phase. And what they show as you move along the wedge and the range contracts, it’s telling you that the downward momentum that’s been in place since a high is losing energy. It’s losing steam, and the key is to wait for the market to tell you when the time is right and that’s when you get the trend change. And that’s what we’ve had over the last couple of months. The trend has changed, we’ve broken above upper trend line, and we’ve pushed up to a multi-month high. We’ve broken out of this wedge. So that’s a sign that the trend is changing. We’re also getting these moving averages turning positive, so it’s a really positive setup.
It’s a positive setup on Evolution and the gold stocks generally, and I think this stock has the potential over the next 12 to 18 months to be trading up towards $7 and potentially beyond. This very much has the structure to that could see this stock run over the next year or two… up to $7 and beyond. Of course, it’s not going to be a straight line, but it could be a repeat of something like the rally from 2014 to 2020, and so there’s a lot of upside potential in Evolution as well as many of the other gold stocks.
And another thing I like about this is that it’s possible to have a trade in a stock like Evolution with relatively low risk. So where would you place an exit stop? You could have an exit stop just back towards the breakout point. So just measuring that out, that’s around a 15% stop loss. A 15% stop loss on a stock that could double, so that’s good asymmetric reward.
And I like what the stock has been doing over the last four weeks just trading sideways within this tight range. That shows me that there’s buying interest on the pullbacks, and it’s underpinning the share price. Of course, this consolidation could go on for longer, it could pull back a little bit more. But at the moment, this is looking like momentum is shifting in favour of Evolution.
Okay, so let’s go to our next opportunity — uranium. And this is an interesting play. Let’s set the scene by looking at a chart for the uranium price. We’ll go to the weekly chart because weeklies are great at giving you perspective on the overall price movement.
So what we have here, we’ve got uranium going back to around 2005. We had a giant boom in the mid-2000s which was followed by a decade-long bust. And then over the last several years, we’ve had this rounding bottom formation appear on the charts. And what I like over the last couple of years is this upward momentum, which is coming off the base, and what’s particularly interesting over this period is that all dips we’re seeing through here, all the dips are being bought, and the price is then pushing up to continuing to push up to new highs.
And there’s also a strong demand-supply story underpinning uranium. So I think over the next few years, uranium has the potential to head back up towards its all-time highs. It’s not going to happen in a straight line, there’s going to be plenty of pullbacks along the way. But that’s the overall potential for the next few years. Maybe that’s a story for three to five years getting up to those all-time highs. Who knows? Timing is always hard with these, but that’s where the momentum is currently pushing.
So there are several ways to play uranium, but I want to focus on one opportunity today. It’s an ASX-listed uranium play. Now, let’s just go to the stock code for this. The stock code is BOE. It’s a company called Boss Energy. So let’s just call that up on the chart, and let’s go to our daily chart for this one. It’s a really interesting play. Most of the ASX-listed uranium plays don’t have a great investment case. This is one of the few which I think does have a strong investment case.
Boss Energy, it’s nearing the final investment decision on a site they have in South Australia. Plans are to be producing uranium within 12 to 18 months of making a positive decision, which is what the company appears to be heading towards. And the company is saying they could be producing up to 3.3 million pounds of uranium per annum, which would make it a globally significant producer.
Now, this is a really interesting chart structure. Since September, the market has been moving within this big trading range. And I think this trading range has really just been a pause in this up trend which has been in place since early to mid-2020. I think this is a large consolidation of that trend, and I think this is going to create a base for a new leg higher in Boss Energy. And if this does turn out to be a large basing formation, we could see Boss Energy start to move up towards $4 from current levels of around $2.30 over the next 12 to 18 months, so there is considerable upside potential in this stock.
Now, as always, you need to look at the risk. What is the risk involved with taking a position, and how do you take a position in this stock? Well, there are two ways to play this. Firstly, you’ve got the more aggressive play. The more aggressive play is to buy around current levels. Current levels are around $2.29. You could buy here. There’s support underpinning the market at around $2.20, so it’s only just above support. This means the risk can be really, held quite tightly. Really limited the risk.
You could have a stop loss just below the recent lows, so maybe about $2.11, which is potentially like less than a 10% stop loss. Or you could give it a bit more room down to just above $2, which takes you to about 12%. So you could get a lot of upside potential for relatively low risk.
A more conservative play would be to wait for a break of the recent high at $2.54. Maybe it’s a case of waiting to see whether we do get a break above that level. It’s could then be a case of going with the momentum should that occur. And it means the stop loss needs to be a little bit further away, but that’s the trade-off for waiting for the momentum to actually kick in rather than pre-empting it. That’d be my preferred play, to buy on the break of momentum. And again, it’s one of those really asymmetric opportunities, highly asymmetric where a relatively small downside is coupled with big upside potential.
Now, the last opportunity I want to mention, an iron ore miner. Ticket code is MGX. It’s Mount Gibson Iron. Now, this is an interesting one. It came up Motion Trader’s algorithm scans just a week or so ago. It’s a mid-tier iron ore miner with a market cap is about $760 million. It’s probably not on the radar for most people because most people are looking at larger stocks in the ASX 300. But this is the great thing about using algorithms… you can find a lot of opportunities that many people miss.
Just a little bit of background, Mount Gibson Iron is based in Western Australia, and is a relatively high-cost miner, so it’s a lot more leveraged to the iron ore price and some of those top-tier players. And if we look at the chart, you can see it’s turning higher after the large sell-off that it had last year when the iron ore price was falling. So, from a momentum perspective, it’s starting to do the right things.
You can see the moving averages have crossed. I’m looking at a 50 and a 100-day moving averages. I’m only buying stocks when they’re trading above their moving averages. I don’t try to pick the low as it’s falling when it’s below the moving average. The odds are more in your favour, I believe, when you’re buying above the moving averages. That’s where it is now. It’s also breaking to a new high which is another positive. So it meets the momentum criteria and the new high criteria that I look for when I’m assessing potential new opportunities.
Again, risk could be managed with a relatively close stop loss. It depends how much risk you want to take. But a stop loss of around 15% to 20% could be all that it needs. Mount Gibson is a relatively low-risk play for a large potential upside of potentially north of $1. MGX is another one of those stocks that could double, but the risk could be contained to a modest amount.
With all these stocks today, it’s not about getting every call right. Any one of these could fail, and that’s not a problem, because what the idea is, it’s about identifying possibility, then assessing the risk and the reward dynamics of each individual stock. And when we assess those things with the three stocks that we’ve looked at today, you have three situations where you can keep your risk relatively tight with an exit strategy, but then have significant upside potential should they run. And you really only need one of them to run to potentially make a lot of money.
I believe that if you play those sorts of setups consistently, then you start to shift the odds in your favour and you get away from those people who are constantly buying dips and holding stocks as they continue to fall. It’s about looking for low-risk, high-reward setups. And if you’d like to know more about how I’m identifying these stocks, and what I think are the best ASX stocks to buy now, and how I protect my capital with risk-management strategies, come over to my website, motiontrader.com.au.
I hope you’ve got something interesting out of that. I’ll look forward to talking to you again in another video. Thanks for listening.
Looking for ASX stocks to buy now, as well as off the radar ideas most people don’t know? Our algorithms scan the stock market daily for medium term investment trends. We then tell our members precisely when to buy shares. And most importantly, we tell them when to sell.
If you’re ready to get started, try a no obligation 14-day free trial of Motion Trader, and see what an algorithmic trading approach could do for you.
I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.