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Get Out of Oil and into Mining

As oil prices pullback and inflation continues to rise, now is the time to invest in mining stocks, two investment strategists told CNBC Wednesday.

"We like the sector," Morgan Stanley Managing Director Fergus O'Sullivan told "Power Lunch Europe." "Valuations are now back to compelling levels."

An attractive buy is India-focused metals group Vedanta Resources, which reported a 6.3 percent rise in first-quarter earnings Tuesday, as raw material prices continue to rise, providing a positive outlook for the company, O'Sullivan said.

Vedanta shares have shed 9.5 percent so far this year.

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"In recent weeks, there have been a couple of supportive macro issues," O'Sullivan said. "The shift in Chinese macro policy over the weekend towards growth and away from their inflation concerns, and the news from BHP Billiton, that the Escondida mine is going to be producing 10 percent less copper in the coming 18 months."

Amanda Purton, head of equity research at Barclays Wealth, said she especially liked UK mining stocks as the "valuations are low and companies are more able to cope with rising prices" and they are good ways to play the inflation game.

Although Morgan Stanley advises investors to start coming out of oil stocks, there is still opportunity in exploration companies, like UK-based Tullow Oil, O'Sullivan said.

He expects shares to trade higher based on the results from its prospecting in Uganda and Ghana.

Barclays Wealth said in their August report that the operating environment for oil majors will remain challenging and gave the sector a 'neutral' recommendation.

Consumer staples and utilities were other areas which Barclays Wealth said were looking expensive and suggested getting out of those sectors.

"Food producers, food retailers, aerospace and defense firms and utilities are especially likely to suffer from margin squeezes caused by inflation," Purton said in a research note.

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