Why Are BHP Billiton plc, Anglo American plc and Rio Tinto plc Falling Today?

Should you buy BHP Billiton plc (LON:BLT), Anglo American plc (LON:AAL) and Rio Tinto plc (LON:RIO) following today’s falls?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Mining shares fell sharply when markets opened this morning — and amongst the biggest fallers were FTSE 100 giants Rio Tinto (LSE: RIO) (NYSE: RIO.US), BHP Billiton (LSE: BLT) (NYSE: BBL.US) and Anglo American (LSE: AAL).

The falls were triggered by the World Bank, which has warned that the global economy is currently too reliant on the “single engine” of the US recovery. As a result, the Bank’s forecast for global growth in 2015 has been cut from 3.4% to 3%, while its estimate of 2014 growth has also been revised down, falling from 2.8% to 2.6%.

What’s the problem?

The cuts were blamed primarily on the weak economies of the eurozone, which are continuing to struggle in the aftermath of the financial crisis. Although the US economy appears to be growing strongly, and is expected to grow by 3.2% in 2015, the Bank’s forecast for eurozone growth was cut from 1.8% to 1.1%, while Russia is now expected to contract by 2.9% this year.

The news triggered a slide in commodity prices, especially copper, which is down by more than 5% today and has fallen by nearly 12% so far in 2015.

There was one bright spot, however, which may have been overlooked in today’s sell-off — growth in China, which is one of the miners’ biggest customers, is expected to remain firm at 7.1% in 2015, only slightly below the 7.4% seen in 2014.

Copper surplus

There is a second reason that the price of copper is falling — too much supply.

As with oil, the global copper market is currently running a surplus. However, the copper market is expected to return to a deficit next year, thanks to a fall in mine supply and growing Chinese demand, which should provide support for copper prices in the medium term.

Is the sell-off overdone?

Mining stocks look pretty battered at the moment, and you may be tempted to cut your losses and sell.

However, I think this could prove to be a costly mistake — mining stocks look cheap today, and could rebound strongly over the next few years, in my view:

Company

2015 forecast P/E

2015 prospective yield

PE10 (price/10-year average earnings per share)

BHP Billiton

9.9

6.6%

8.4

Rio Tinto

10.0

5.4%

8.5

Anglo American

9.0

5.5%

5.0

These valuations seem pretty undemanding to me, especially given the generous dividend payouts on offer, which I believe are unlikely to be cut.

It’s also worth noting how low each miner’s PE10 ratio is: this is a classic value investing measure designed to highlight firms that are cheap compared to their historical average earnings.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares in Rio Tinto and BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »