Are Rio Tinto plc, Petra Diamonds Limited & Polymetal International PLC ‘Screaming Buys’?

Should these 3 stocks be top of your buy list? Rio Tinto plc (LON: RIO), Petra Diamonds Limited (LON: PDL) and Polymetal International PLC (LON: POLY)

| 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.

Shares in Petra Diamonds (LSE: PDL) have soared by as much as 12% today after positive news regarding its capital position. Petra’s group of lenders has agreed to waive the measurements of the two covenant tests related to EBITDA for the 2015 financial year. Furthermore, Petra’s lenders have stated that they remain supportive of the company’s expansion plans and current strategy.

This is very positive news for Petra and, with the company making encouraging progress with its production as well as cost control, its future appears to be relatively bright. Furthermore, Petra is focused on undiluted ore, with expansion programmes at both Cullinan and Finsch remaining on-track and, with favourable currency changes being taken into account, it is well financed for the completion of its capital expansion programme.

In addition, Petra has also announced the purchase of an interest in Kimberley Mines in South Africa from De Beers. This should provide the company with an improved long term outlook and, looking ahead, Petra’s price to earnings (P/E) ratio of 12.9 indicates that there is upward rerating potential. Certainly, there is still some way to go regarding the implementation of its long term strategy, but for less risk averse investors it could prove to be a sound, albeit volatile, buy.

Meanwhile, Rio Tinto (LSE: RIO) also appears to be a worthy purchase at the present time, with its financial standing being superior to the vast majority of its sector peers. For example, in its half year results the company reported free cash flow of $4.4bn, which comfortably covered sustaining capital expenditure of $1.2bn and a dividend of $2.2bn. And, with Rio Tinto having a modest debt to equity ratio of 50%, it appears to be in a strong position to not only survive the current slowdown in the mining sector, but emerge as a beneficiary relative to its peers.

Furthermore, Rio Tinto currently yields a whopping 6.7% and this puts it among the highest yielding stock in the FTSE 100. Clearly, a dividend cut could be on the cards, but the company’s dividend coverage ratio of 1.2 indicates that any fall in shareholder payouts may be less than is currently being priced in by the market. As such, Rio Tinto’s shares may post surprisingly strong gains over the medium to long term.

Also offering potential upside is Polymetal (LSE: POLY), with its shares having fallen by 10% in the last year. Although this fall is not without good reason, with the company’s bottom line expected to decline by 10% this year, Polymetal is expected to return to positive growth next year with a rise in net profit of 6% being pencilled in by the market.

This puts Polymetal on a price to earnings growth (PEG) ratio of only 1.8, which indicates that its shares offer growth at a very reasonable price. And, with the price of gold having the potential to rise if an uncertain outlook for the global economy continues, Polymetal could be set for strong share price performance in 2016 and beyond.

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.

Peter Stephens owns shares of Rio Tinto. 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

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »