Rio Tinto plc Tops The Miners

Rio Tinto plc (LON: RIO) looks a steal at these prices.

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.

I’m currently taking a look around the FTSE 100 sectors to find the best of each bunch, and today it’s time for a look at the miners.

We have a few to choose from, so let’s start with a quick look at the competition:

Company Price Change EPS growth P/E Divi Cover
Anglo American
1,518p -3% -9% 13.6 3.4% 2.20x
Antofagasta
835p -10% +26% 16.7 2.1% 2.92x
BHP Billiton
1,907p +5% +22% 12.0 3.8% 2.21x
Fresnillo 906.5p -15% -8% 44.5 1.3% 1.77x
Glencore Xstrata
313.6p -2% +11% 14.5 3.3% 2.15x
Randgold Resources 4,748p +7% +16% 23.1 0.7% 6.12x
Rio Tinto 3,332p +12% 0% 10.3 3.7% 2.69x

*Price change is over the past 12 months, EPS growth, P/E and dividend yields are forecasts.

Shiny things

opencast.miningStraight away I can cast out Fresnillo and Randgold Resources, simply because they’re engaged in the pursuit of precious metals. If you’re interested in that kind of thing and can make money, great — but for most of us, chasing the prices of gold and silver is a mug’s game.

Anglo American (LSE: AAL) has been struggling, with earnings per share falling for a couple of years — and there’s a further fall forecast for the year to December 2014, of 9%. The company does produce very good stuff in the form of iron, manganese, copper, etc — though it is also in the diamonds and precious metals business to the tune of around 20% of profits. I reckon Anglo American is a bit too highly priced considering the slow speed of its recovery, so it’s not my pick.

Focus on mining

Glencore Xstrata (LSE: GLEN) is another I’m passing on, mainly because it’s more diversified into general commodities production and processing — energy products, agricultural products, processing and refining of resources all fall under its umbrella. And I think the best opportunities right now are in pure plays on mining itself.

That leaves us with copper miner Antofagasta (LSE: ANTO), and diversified miners BHP Billiton (LSE: BLT) and Rio Tinto (LSE: RIO).

And I can refine that further by eliminating Antofagasta — I reckon it’s a solid investment, and it has strong earnings growth forecasts. But it’s tied to the global price of that one specific metal, copper, and I don’t think the current valuation is low enough to compensate for that extra risk.

Diversity in metals

rio tintoBHP and Rio both unearth a similar range of materials, with iron ore the biggest single product for each. Aluminium comes next for Rio, while BHP sees petroleum and potash as important products. And both contribute to the world’s copper supplies.

BHP has better growth forecast for this year, but at a slightly higher P/E valuation, but there’s no growth forecast for 2015. It’s the other way round with Rio — no growth expected this year, but 13% next. Both companies carry similar levels of debt, so there’s nothing to choose on that basis, and they’re similar sizes in market cap.

Rio edges it

In the end, I see slightly better valuation in Rio, with a forward P/E of under 11. And with 80% of its turnover coming purely from metals, I see it as the better bet for continued Chinese growth. It’s close, but as I also decided when I added it to the Beginners’ Portfolio, Rio Tinto is the miner for me.

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 shares mentioned in this article.

More on Investing Articles

Growth Shares

Growth stock YouGov just fell 46%. Time to buy?

YouGov’s share price just fell from 820p to 440p after a poor trading update. Is now a good time to…

Read more »

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »