Is it safe to buy low on mining stocks?

  @FortuneMagazine August 29, 2013: 7:30 AM ET
WEA16 mining stocks

One would be hard-pressed these days to find a more unloved group of stocks than those in the beaten-down mining sector. While the broader S&P 500 index has racked up an impressive 15% gain this year through mid-August and has been hovering near record highs, the S&P 500 Metals & Mining index has tanked by almost 20% in 2013. And that dismal performance marks the third straight year of negative returns for mining stocks, which fell by 7% and 29% during 2012 and 2011, respectively.

There are some very compelling reasons for the plunge. Commodity prices have been slammed by a growth slowdown in China, which accounts for about 45% of the world's base-metals consumption. And prices for gold and other precious metals have also been hit over speculation that the Federal Reserve will soon start tapering back its massive stimulus efforts, which have stoked inflation fears and helped prop up commodity prices.

The bloodbath in mining stocks has led many industry experts to declare the sector oversold, and some high-profile investors, such as hedge fund manager David Einhorn of Greenlight Capital, have recently been upping their stakes in mining companies. The sector has even been showing some signs of life lately: The Metals & Mining index has bounced about 10% since the beginning of July, aided largely by an unexpected rise in China's exports that could signal a stabilization of demand for commodities.

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