Why I’m Bullish On Rio Tinto plc & Big Yellow Group plc

These 2 stocks appear to be worth buying right now: Rio Tinto plc (LON: RIO) and Big Yellow Group plc (LON: BYG)

| 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.

Although 2015 has been a challenging year for Rio Tinto (LSE: RIO), the company appears to be doing all of the right things through which to stage a long term recovery. Clearly, the falling price of iron ore which, earlier in the year, reached a ten-year low has been a major drag on performance, but Rio Tinto’s increased production is likely to offset this decline to an extent in future.

More importantly, though, is the improved position which increasing production volumes has on a relative basis. In other words, Rio Tinto continues to gain versus its sector peers, with the company’s ultra-low cost base and sound financial standing likely to mean that it can outlast the competition during a tough period for the wider mining sector.

Furthermore, Rio Tinto is reducing capital and exploration expenditure and, as its recent results showed, cash flow appears to be sufficient to maintain its current level of dividend as well as complete the necessary sustaining capital expenditure. As such, and while a dividend cut cannot be ruled out, dividends per share are expected to be covered 1.13 times in the current year. With Rio Tinto offering a yield of 6.5%, it remains enticing for income-seeking investors.

Of course, Rio Tinto’s bottom line is forecast to fall by 49% this year and by a further 9% next year. This has the potential to keep investor sentiment pegged back but, for long term investors, the company’s strategy looks set to place it on a sound growth trajectory. And, with it trading on a price to earnings (P/E) ratio of 13.6, it appears to offer good value for money, too.

Meanwhile, storage specialist Big Yellow Group (LSE: BYG) is experiencing rather different trading conditions to Rio Tinto. It continues to see demand for its services increase, with today’s half-year results showing that occupancy rates have risen from 73.2% in March 2015 to 77.3% at the end of September 2015. A key reason for this is a lack of competition in the south east and, looking ahead, this scarcity value is likely to see Big Yellow’s occupancy rate rise further.

As a result of the increased occupancy, Big Yellow’s adjusted pretax profit soared by 30% versus the comparable period from last year and this means that the interim dividend has been increased by 16%. As such, Big Yellow now yields 3.3% and, with the company being forecast to increase its bottom line by 14% for the full year and by a further 13% next year, additional rises in shareholder payouts are on the cards.

Certainly, Big Yellow’s P/E ratio of 24 is relatively high, but its capital growth potential is significant. That’s at least partly because it has the financial capability to add new capacity, but mainly because occupancy rates are likely to grow as the UK economy continues to move from strength to strength. Therefore, now appears to be a good time to buy a slice of the business, even after it has risen by 125% in the last five years.

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 Big Yellow Group and 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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »