2019 has been surprisingly good for global stock markets, which have risen by around 25% since the start of the year, according to the MSCI World index.
The FTSE 100 has been weighed down by the UK’s political uncertainties but still climbed 7% over the year. Add in its current yield of 4.5% and investors should be sitting on a respectable total return of 10% this year.
The following two stocks have done notably better, yet are still trading at bargain valuations. Both are worth considering for 2020.
Anglo American
Multinational mining giant Anglo American (LSE: AAL) has had a storming year, its share price up by almost a third in the last 12 months. This continues its run of good form, which has seen the stock rise by 67% over three years.
The South African company, listed on the FTSE 100, is the world’s largest producer of platinum, with around 40% of world output, but has plenty of diversification, as a major producer of diamonds (through De Beers), as well as copper, nickel, iron ore, and metallurgical and thermal coal.
It has been working hard to reduce costs and increase productivity, with CEO Mark Cutifani recently claiming to have completely transformed “both the quality of our portfolio and our performance over the last six years”. This year, management cut unit costs by 5%, and expects to delivering 20% to 25% production growth by 2023.
The group has also substantially reduced net debt and returned $4.2bn to shareholders through dividends and buybacks. Despite this success, the Anglo American share price looks a relative bargain at 9.4 times forecast earnings, while its 4.3% yield is nicely covered 2.5 times by earnings.
With mining stocks, performance largely depends on the global economy, as demand and prices rise and fall in line with growth. Next year, the OECD is forecasting relatively sluggish GDP growth of 3%, so the recent surge may prove tricky to repeat, but this well-run £28bn mining giant looks a long-term buy and hold for me.
Rio Tinto
Anglo-Australian multinational Rio Tinto (LSE: RIO) didn’t quite match Anglo American for share price growth in 2019, but still climbed more than 20%. It is a much bigger beast, with a market cap of £72bn, the 10th biggest stock on the FTSE 100.
Again, Rio produces a broad spread of metals and minerals, including copper, iron ore, bauxite, and diamonds, giving it diversification and plugging it into the global economy. Management continues to invest heavily in future production, in recent weeks approving a $749m investment in its Pilbara operation and another £1.5bn at its Kennecott Copper mine, extending its life until at least 2032.
Luck has been on its side, as has just accidentally discovered valuable lithium deposits – used in electric cars – while digging for gold in California.
The group currently trades at an even cheaper price than Anglo American, just 8.8 times forward earnings, while offering a handsome yield of 5.5%, covered 1.7 times earnings.
Again, much will depend on global growth. That could be bumpy in the short term, but in the long run, both Rio Tinto and Anglo American should help investors tap into a fast-growing, urbanising global economy, from the safety of the FTSE 100.
