Earlier today, I trawled through the elite FTSE 100 index, looking for unloved, undervalued, and mispriced shares. I concentrated my search on Footsie heavyweights — companies worth over £30bn. Interestingly, I found three shares from the same sector that look dirt cheap to me.
Three FTSE 100 mining giants
As a value investor, I like buying into solid companies with high earnings yields and market-beating dividends. Also, I’m something of a contrarian or ‘reverse momentum’ investor, in that I like to buy stocks whose prices are falling.
For example, shares in these three FTSE 100 mega-miners have fallen hard in recent months:
| Company | Market value | FTSE 100 rank | Share price | One-year change | Five-year change |
| Rio Tinto | £86.9bn | #7 | 5,120p | -10.9% | +28.7% |
| Glencore | £61.7bn | #9 | 491.05p | +0.3% | +33.1% |
| Anglo American | £34.4bn | #15 | 2,569.5p | -30.2% | +51.9% |
These three firms are London’s largest listed miners, with market values between £34bn and £87bn. Also, two of these stocks — Rio Tinto and Anglo American — have fallen over the past 12 months.
Then again, all three mining stocks have risen in value over the past half-decade. What’s more, the above returns exclude cash dividends, which all three businesses pay out handsomely. In fact, these three firms pay out some of the Footsie’s largest cash returns, with many billions of dollars going to shareholders.
I see all three shares as too cheap
As a fundamentals-driven investor, I regard all three of these FTSE 100 stocks as too cheap right now. Here are their current share fundamentals:
| Company | Price-to-earnings ratio | Earnings yield | Dividend yield | Dividend cover |
| Rio Tinto | 8.4 | 12.0% | 8.0% | 1.5 |
| Glencore | 4.6 | 21.6% | 9.7% | 2.2 |
| Anglo American | 8.7 | 11.5% | 6.4% | 1.8 |
All three stocks offer double-digit earnings yields, with Glencore‘s exceeding 20%. Also, this trio offers some of the FTSE 100’s highest cash yields, ranging from over 6% to nearly 10%. Helpfully, these payouts are covered by between 1.5 and 2.2 times earnings.
Now for the bad news. The above fundamentals are based on trailing (historic) figures. And while 2021 was a record year for global miners, their revenues, profits, and earnings per share fell back in 2022.
What’s more, analysts expect mining companies to record reduced earnings and dividends in 2023. And big earnings declines would make these stocks look a lot less attractive.
Nevertheless, I can’t help but conclude that much of this anxiety is already baked into these mining shares. In particular, Glencore looks a screaming buy to me, being among the FTSE 100’s cheapest stocks.
Of course, I could be wrong. A global slowdown (or weakness in China) could lead to slumping demand for metals and other industrial commodities. In addition, miners’ earnings are notoriously variable.
Finally, my wife and I already own Rio Tinto stock, which we bought last June for our family portfolio. I’d gladly buy more Rio shares at current levels. Also, I’ve added both Anglo American and Glencore to my ‘urgent buy’ list for when my next cash infusion arrives!
