The Beginners’ Portfolio Tops Up On Rio Tinto plc

We double up our holding of Rio Tinto plc (LON: RIO).

| 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.

This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.

The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.

Last time, I was thinking of what to do with the cash we have in the pot — there’s the £724.32 raised from the sale of Vodafone, plus a total of £319.51 that has accumulated from dividends. That’s a total of £1,043.83p, and I’m splitting it two ways.

opencast.miningDigging deep

One chunk will go into a new investment to take our number of holdings back up to 10, and with the rest I’m topping up on an existing holding — and it’s Rio Tinto (LSE: RIO) (NYSE: RIO.US).

With Rio Tinto shares selling for an offer price of 3,223p on Thursday 30 January, we’ve added 15 more to our holding. Once we add dealing charges of £10 and stamp duty of £2.42, our purchase has cost us £495.87. Our two tranches look like this:

Date Shares Price Cost Bid Value Change %
16/08/2012 16 3,048.4p £500.18 3224.5p £505.92 £5.74 1.1%
30/01/2014 15 3,223.0p £495.87 3224.5p £473.68 -£22.15 -4.5%
Total  31 3,132.9p  £996.05 3224.5p  £979.60  -£16.46 -1.7%

So we have 31 shares at an average price of 3,132.9p. Our initial investment was just in profit after accounting for charges and the share price spread, and we’ve now taken that to a small loss of 1.7% on the combined investment.

That means, with the cash realised from selling Vodafone plus our accumulated dividends, we now have £547.96 to invest in a new share — I’ll be narrowing the search down soon.

Why Rio Tinto?

So why did our top-up cash go into Rio Tinto and not one of our other holdings? Well, the short answer is that I think it’s the most undervalued. For a longer answer, I’ll tell you why…

Commodities shares always fall when economies are down — demand falls, metals and minerals prices drop, and miners’ profits fall. And that’s exactly what happened during the credit crisis and recession and, more importantly, during the Chinese slowdown. China was (and still is) seen as a serious consumer of all that stuff from the earth, and its slowdown certainly hurt the sector.

Recovering

When we first bought Rio Tinto I thought it was just too cheap, although the recovery is taking longer than I’d expected — although I did stress that I’m in it for the long term and that the outlook over the next couple of years was really of no importance.

Analysts are finally turning cautiously bullish again on the sector, and several miners have now reported excellent production figures for the fourth-quarter of 2013.

Rio Tinto, in fact, told us of record iron ore shipments of 72.4 million tonnes during the three months, up 8% on the final quarter of the previous year, with year-to-date shipments up 5% to 259 million tonnes. Bauxite and thermal coal production also hit new records, and the firm reported an “impressive recovery” in copper.

Too cheap

With the shares on a forecast P/E of 10, falling to around 8 by 2015, and with dividend yields expected to rise from 3.4% to 3.9% over the next two years, Rio Tinto shares were just irresistible.

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.

> Alan does not own any Rio Tinto shares.

More on Investing Articles

A pastel colored growing graph with rising rocket.
Investing Articles

Is this FTSE 100 passive income superstar also its best bargain right now?

This FTSE 100 gem still looks to me like one of the best bargains in the index. It appears very…

Read more »

Investing Articles

If I’d put £10,000 into Meta stock at the start of 2024, here’s what I’d have now

Our writer looks at the year-to-date performance of Meta stock and considers whether he'd consider buying this magnificent tech share.

Read more »

Hand arranging wood block stacking as step stair on paper pink background
Investing Articles

Investing £5 a day in this dividend giant can make me a £14,067 annual second income!

This FTSE 100 high-yield star can make me a major second income, supported by a strong business outlook and an…

Read more »

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

Taylor Wimpey shares yield a fabulous 6.41%, but is the dividend safe?

Harvey Jones has enjoyed plenty of growth and income after buying Taylor Wimpey shares last year. But is today's high…

Read more »

Yellow number one sitting on blue background
Investing Articles

1 FTSE lithium stock I think could be ready to rocket

Jon Smith explains why the lithium price could be due a rally, and why shares of one related FTSE stock…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

This growth stock that Warren Buffett owns just hit 52-week lows. Should I buy?

Jon Smith flags up a high-profile US stock that the great Warren Buffett bought back in 2020 but which has…

Read more »

White female supervisor working at an oil rig
Investing Articles

Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should we buy cheap FTSE 100 shares now, before it’s too late?

The FTSE 100 is up 5% so far in 2024 and hit an all-time high in May. That means the…

Read more »