Will Rio Tinto plc, Antofagasta plc & Rockhopper Exploration plc ever recover from the commodity crisis?

Should you buy or sell these 3 resources stocks? Rio Tinto plc (LON: RIO), Antofagasta plc (LON: ANTO) and Rockhopper Exploration plc (LON: RKH)

| 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.

In the last year, shares in Rio Tinto (LSE: RIO) have fallen by around 27%. As such, many investors may feel as though the outlook for the company is rather downbeat, since investor sentiment has clearly worsened in recent months. And if commodity prices were to fall in future, it would be of little surprise for Rio Tinto’s share price to do likewise.

While Rio Tinto’s future is largely dependent upon the price of commodities, the company has a sound strategy to survive further weakness in this space. For example, it has cut costs and focused on becoming increasingly efficient so that it is now one of the most competitive iron ore miners in the world. Furthermore, it has a sound balance sheet and strong free cash flow which means that it is able to invest in its asset base to ensure that it at least maintains its relatively dominant position within the industry.

With Rio Tinto trading on a price-to-earnings growth (PEG) ratio of 1.4, it seems to offer excellent value for money given the quality of its asset base and its highly efficient business model. As such, and while further commodity price falls cannot be ruled out, it looks set to survive and prosper in the long run which makes now a sound moment to buy a slice of it.

Also adapting successfully to a lower commodity price environment has been Antofagasta (LSE: ANTO). Like Rio Tinto, it has sought to become more efficient and with the sale of non-core assets such as its water business, Antofagasta has strengthened its balance sheet and made its long term future more secure.

While the price of copper has come under pressure, the price of gold has performed well in recent months and this could cause a boost to Antofagasta’s bottom line. In fact, in the next financial year Antofagasta’s earnings are forecast to rise by 68% and with its shares trading on a PEG ratio of 0.8, it seems to offer a very wide margin of safety.

As with Rio Tinto and any other resources company, Antofagasta is highly dependent upon the prices of the commodities it sells. But with greater diversity than many of its peers and an improved financial outlook, it could prove to be a top notch performer.

Meanwhile, Rockhopper Exploration (LSE: RKH) has also sought to strengthen its financial position through the acquisition of Falkland Oil and Gas. This seems to have been a logical move for the company to take since it has resulted in a business with a stronger asset base and with greater growth potential. And with the Falkland Islands in particular having significant potential for long term oil production, Rockhopper remains appealing to less risk averse investors.

Of course, Rockhopper is a relatively small entity and it is highly dependent upon news flow in the short term at least. But with a somewhat diversified asset base and a sound strategy, it could be worth a closer look.

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.

Peter Stephens owns shares of Rio Tinto. 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

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

Time to sell this FTSE 100 underperformer, says Goldman Sachs

Analysts at one investment bank have a ‘sell’ rating on FTSE 100 stock Diageo. But could a short-term weakness in…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Down 5%, Glencore’s share price looks a serious bargain to me now

Glencore’s share price looks undervalued to me, supported by strong earnings growth prospects and the potential resumption of extra shareholder…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’d invest £6,580 in this FTSE 250 REIT for £500 passive income

This FTSE 250 renewable energy enterprise is on track to become a Dividend Aristocrat! Here’s how I’d invest to earn…

Read more »

Investing Articles

Buying 1,000 of some dividend shares today unlocks £45 in weekly passive income!

These shares are among the biggest dividend payers in the FTSE 100. Should investors be buying them now to earn…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

If I’d put £5k in index funds 5 years ago, here’s what I’d have now

Investing in index funds is an excellent way to grow wealth with minimal effort. But how much money can investors…

Read more »

Investing Articles

10.2% yield! 1 of the top income stocks to buy in July?

A 10% yield's pretty rare, but this firm's been growing shareholder payouts for nine years! Does that make it one…

Read more »

Investing Articles

‘FTSE 100 to skyrocket to 10,000’! 1 cheap stock I’d buy before the surge

Analyst forecasts predict a massive surge for the FTSE 100 may be coming by April 2025! Should investors snap up…

Read more »

Investing Articles

My Taylor Wimpey share price prediction for the second half of 2024

Having underperformed the FTSE 100 from January to June, our writer reckons the Taylor Wimpey share price might enjoy a…

Read more »