Rio Tinto
The slowing of the Chinese economy has reduced demand for iron ore, Rio Tinto (LSE: RIO) (NYSE: RIO.US)’s main product.
Last year, analysts were forecasting that Rio would report $8.38 of earnings per share (EPS) in 2013. As metals prices have fallen, the City now expects that Rio will make just $5.35 per share.
This is a big decline on the money that Rio has made in recent years. The fact that earnings at Rio can so quickly go into reverse will have undermined confidence in the company as an investment.
Rio now trades on a 2013 P/E of 7.3, with an expected yield of 4.6%. Earnings are expected to pick up next year, putting the shares on a 2014 P/E of 6.5, with a projected yield of 5.0%.
Fresnillo
Fresnillo (LSE: FRES)’s profits are massively geared to the price of silver. For the last few years, precious metals have been a play on quantitative easing (QE). Any announced increases in QE have seen bullion prices surge.
However, the US Federal Reserve is now signalling that US dollar QE may soon be coming to an end. This has shocked the precious metals markets. The supposedly safe-haven investments have sold off sharply.
The price of silver is down 31% in the last year. Fresnillo shares are down 40%. At a time like this, earnings forecasts fail to keep up with changing metals prices.
The price of silver is close to where we were before QE started up. The big price falls may be over.
Petrofac
Energy services firm Petrofac (LSE: PFC) is one of the FTSE 100’s great growth shares. In the last five years, its dividend has increased at an average rate of 31% per annum. In that time, earnings have been increasing, year-on-year, at an average of 26% a year.
All of this success has not prevented Petrofac shares from falling 24% in 2013.
The recent price falls are puzzling. Back in May, Petrofac confirmed that it expected to report a modest increase in profits in 2013. Last year, the company made EPS of $1.79. At today’s price, Petrofac is trading on a historic P/E of 10.3. That seems inexpensive for a company that has been so successful.
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> David does not own shares in any of the above companies.
