The last six months have been complete opposites for investors in Rio Tinto (LSE: RIO) (NYSE: RIO.US) and Vodafone (LSE: VOD) (NASDAQ: VOD.US), with the two companies delivering markedly different share price performance. While Rio Tinto has suffered from a lower iron ore price that has hurt investor sentiment and sent its shares 16% lower, Vodafone has made gains of 17% as Europe finally begins to put in place the strategy required to turn its fortunes around.
Despite this difference in performance, Rio Tinto and Vodafone share a common trait: they both appear to be worth buying right now. Here’s why.
The Right Strategy
Although the two companies are enduring challenging periods at the present time, they are both very much on the front foot and are attempting to turn ‘disaster’ into opportunity. For example, Rio Tinto has increased its iron ore production as it attempts to win market share so that it is even better placed to deliver long term profitability gains moving forward.
Similarly, Vodafone is experiencing disappointing growth numbers in its main market, Europe, but is buying up undervalued assets such as Kabel Deutschland that, in the long run, could boost its profitability.
As a result of these two aggressive strategies, Rio Tinto and Vodafone are much better placed than many of their peers and, as such, seem to offer appealing long term growth prospects.
Financial Standing
Despite facing difficult markets, both Rio Tinto and Vodafone have very sound finances. For example, Rio Tinto has a debt to equity ratio of just 53%, and this shows that its balance sheet is only moderately geared, which should allow for further borrowings should it wish to invest in new projects in future.
Similarly, Vodafone has a debt to equity ratio of just 41% and this is significant because it shows that the company has considerable scope to increase debt and make further acquisitions. And, even though the European economy could be on the cusp of improved performance following the announcement of a quantitative easing programme, Vodafone still has considerable time to make further investments at super-low prices.
Income Potential
With Rio Tinto and Vodafone currently yielding 4.7% and 4.8% respectively, they remain hugely appealing income stocks. And, with interest rates unlikely to move higher in the short term, demand for financially sound, high-yielding shares could increase significantly. As a result, the share prices of Rio Tinto and Vodafone could rise considerably this year and, while further challenges in their operations cannot be ruled out in the short term, now could be a great time to buy them ahead of a long term future that seems to be significantly bright.
