Beginners’ Portfolio: A Bad Year For Rio Tinto plc, BP plc And GlaxoSmithKline plc

Why have Rio Tinto plc (LON:RIO), BP plc (LON:BP) and GlaxoSmithKline plc (LON:GSK) all lost money in the past year?

| 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, run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and do not constitute advice to buy or sell.

I looked at some of the sun that has shone on the Beginners’ Portfolio a couple of weeks ago, checking out how well Barclays, Persimmon and Apple have done for us in the past 12 months. But into any portfolio a little rain will fall, so today I’m looking at a few poorer performers and pondering what went wrong:

No mining turnaround

I’ve been convinced for some time that a turnaround in the cyclical mining sector has been coming. But it hasn’t happened yet, and Rio Tinto (LSE: RIO)(NYSE: RIO.US) shares are down 22% in the past 12 months, to 2,563p. We have had 135p per share in dividends, which would give us a 4.3% yield on the 3,133p price at which Rio was added to the portfolio. And overall, we’d be down 13% overall on Rio since purchase if we sold today. The company seems to think its shares are cheap and has been buying them back, but it hasn’t halted the slide.

What’s perhaps ironic is that production volumes remain high, but global commodities prices remain low as uncertainties surrounding China continue — the price of iron ore has blipped up a little in the past couple of months, but it’s still selling for only around a third the price it fetched back in February 2011. With the Chinese stock market also in a slump (and still overpriced in my view), we could have more pain ahead before Rio turns round.

Oil slump

The oil price slump has hit BP (LSE: BP)(NYSE: BP.US), coming right after the Gulf of Mexico disaster, and BP’s shares have fallen 15% in a year to today’s 429p. Our overall loss on the share price is modest at 5.7%, but once we include dividends we’re up 10% — not great over the timescale, but actually not too bad. A mistake I made was underestimating the costs of the oil spill, and I reckoned the bad news was over far too soon.

BP has said it expects the era of cheap oil to continue for at least two to three years, and with a renewed fall back to $52 levels it could well be right. But how does it look as an investment? Well, with dividend yields of around 6% forecast, I reckon it’s not unattractive — the cash wouldn’t be well covered by earnings over the next couple of years, but BP has the means to keep it going in the meantime.

Pharma woes

The picture at GlaxoSmithKline (LSE: GSK) is similar — we’re down on the shares after a 12-month fall of 12% to 1,386p, but with dividends we manage a 7.7% gain. The thing with Glaxo is I don’t think anything has fundamentally gone wrong. The firm is still in its turnaround phase as it recovers from the patent cliff that hit the sector (protection on some key drugs expired), and we’re not expecting a return to growth before next year. But a P/E of around 16 at the bottom of the earnings cycle doesn’t look expensive to me, and although the dividend is likely to be cut a little, analysts are still predicting a yield of around 6% — which, again, the company should be able to sustain.

The portfolio overall? Up 43% since first purchase in May 2012, including dividends and all costs and spreads — with the FTSE 100 up 27% excluding costs, spreads and dividends.

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 Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Barclays. 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

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

5 things that make me nervous about Barclays shares!

After more than doubling over the past year, Barclays shares are riding high. But the road ahead could be bumpy…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

3 reasons the NatWest share price could keep climbing

The NatWest share price has almost doubled in the last 12 months. But Stephen Wright thinks it might not be…

Read more »

Investing Articles

Billionaire’s hedge fund bets big against the GSK share price!

After years of limping along, the GSK share price has leapt 11% in one month. But one of America's richest…

Read more »

Investing Articles

Now at a 52-week high, can the Scottish Mortgage share price go even higher?

The Scottish Mortgage share price is firing on all cylinders, driven higher by outstanding progress at many of the trust's…

Read more »

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

FTSE shares: the perfect ‘get rich slow’ idea?

As a long-term investor, Christopher Ruane reckons the FTSE 100 could offer him the foundations to create stock market wealth.…

Read more »

Investing Articles

Here’s how an investor in their 30s could aim to turn a £10k ISA into £132,676 by retirement

Christopher Ruane explains how someone with a 30-year investing timeframe could aim to increase an ISA stuffed with blue-chip shares…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have made a lot of investors very rich as they push to new heights. Dr James Fox explores…

Read more »

Investing Articles

£20k split between these 2 FTSE value stocks 1 month ago is now worth…

Harvey Jones has had his eye on two value stocks from the FTSE 100. Suddenly they've both taken off at…

Read more »