Is it time to buy Glencore plc, Anglo American plc and Rio Tinto plc?

Should you buy, sell or hold Glencore PLC (LON: GLEN), Anglo American plc (LON: AAL) and 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.

At the end of last year, investors were fleeing the mining sector as it looked as if many of the world’s largest miners would fail to make it through the current hostile commodity market environment.

However, this year the story couldn’t be more different. Miners such as Anglo American (LSE: AAL) have seen their shares rally hard since the lows printed back in January, and as sentiment across the sector improves, there could be more gains to come.

Time to buy?

The second and third weeks of January 2016 marked one of the lowest points for miners since the financial crisis. Commodity prices had plunged to a 13-year low, and many miners were rushing to reassure shareholders that their balance sheets were robust enough to weather the downturn.

It seems as if this PR push worked as sentiment has since drastically improved across the sector. Year-to-date shares in Anglo-American have risen 116%, wiping out most of the losses the shares suffered in the last quarter of 2015. Similarly, shares in Glencore (LSE: GLEN) have jumped higher by around 100% from the lows printed in mid-January, and shares in Rio Tinto (LSE: RIO) have also outperformed the wider FTSE 100, adding 26% compared to the FTSE’s 100 return of 3.6% over the same period.

Nonetheless, just as the market overreacted at the end of last year by overselling these miners, investors have gone on to overreact this year by charging back into the mining sector despite the fact that there has been no significant improvement in underlying fundamentals during the past six months.

As a result, it’s hard to try and evaluate whether or not these miners are worth buying after recent gains. The global macroeconomic picture has hardly improved over the past six months, and there are still questions about China’s ability to hit its growth targets and commodity markets around the world remain oversupplied.

Stay away?

So, until the supply/demand rebalance is restored in the commodity markets and global economic growth picks up, it might be wise for investors to view the mining sector with a degree of caution. What’s more, these three miners all look expensive after recent gains and based on city expectations for growth this year.

Rio Tinto’s shares currently trade at a forward P/E of 22.2 and earnings per share are expected to fall 40% this year. The company’s shares support a dividend yield of 3.6%. Anglo American trades at a forward P/E of 27.7 and earnings per share are expected to fall 34% this year. And finally, Glencore trades at a forward P/E of 54.9. Analysts currently expect the company’s earnings per share to remain constant this year before jumping 79% next year. If this forecast does indeed play out, the company is trading at a 2017 P/E of 32.9.

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.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Rio Tinto. 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

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »

Investing For Beginners

How I’d aim to grow my Stocks & Shares ISA from £20k to £1m

Jon Smith explains how diversification and focusing on sectors for the future can help grow his Stocks and Shares ISA.

Read more »