Near a 52-week low, is Rio Tinto the FTSE 100’s best value stock?

Rio Tinto shares trade near a 52-week low, but do the company’s fundamentals mean it could be the best value stock in the FTSE 100 to buy right now?

| 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.

Smartly dressed middle-aged black gentleman working at his desk

Image source: Getty Images

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.

Value stocks are companies that have relatively cheap valuations compared to their earnings and long-term growth potential. After a big fall, I think there’s a strong case to be made that Rio Tinto (LSE:RIO) shares are undervalued today.

The company’s one of the world’s largest mining conglomerates with operations spanning iron ore, aluminium, copper, and minerals. China’s ailing economy and falling commodity prices have hurt the FTSE 100 stock recently, but a quality portfolio of assets bodes well for its long-term future.

So let’s explore the outlook for the Rio Tinto share price and whether this could be a good opportunity for me to buy cheap shares today.


There are good reasons to exercise caution regarding Rio Tinto shares. The company’s half-year results were disappointing.

Revenue fell 10% to its lowest level in three years, to $26.7bn, and underlying EBITDA slumped 25% to $11.7bn. In addition, the balance sheet took a turn for the worse as net debt widened by $200m to reach $4.4bn. There was a big blow for passive income seekers too. The company’s proposed dividend of $1.77 represents a 34% fall.

A major reason behind the poor performance is the decline in iron ore prices, considering the company’s the world’s largest producer. The raw material accounts for around 77% of Rio Tinto’s underlying cash profits.

China is the largest source of demand, accounting for around 70% of all iron ore imports. Fears over the health of the world’s second-largest economy have hurt the Rio Tinto share price. They could continue to do so.

Rising youth unemployment, a sluggish construction sector, and the growing probability of a deflationary spiral in China all point to difficult near-term trading conditions for the mining giant.

Taking the long view

However, despite the doom and gloom, there are reasons to be optimistic about the long-term outlook for Rio Tinto shares. The company’s Pilbara network of 17 mines in Western Australia arguably has an equivalent importance to the global iron ore industry as Silicon Valley has to technology. Plus, it’s located in a stable, democratic jurisdiction — often a rarity for commodity operations.

If China manages to revive its economic fortunes, Rio Tinto’s iron ore portfolio is well-placed to benefit. Beijing’s launching fiscal and monetary stimulus programmes, which could mark a turnaround. There’s a real possibility that rumours of the country’s demise could be exaggerated.

Moreover, the company’s making strides to diversify away from iron ore. It has already developed asset strength in aluminium and copper. Lithium is the next metal in its crosshairs. The business is exploring the Jadar deposit in Serbia — Europe’s largest greenfield lithium project.

Should I buy Rio Tinto shares?

I already own a stake in Rio Tinto. My position’s in the red, but I think there’s a good chance the company has entered value stock territory. Although there are considerable risks to bear in mind, the firm’s forward P/E ratio of 8.1 implies better value than the FTSE 100 index as a collective.

Further volatility wouldn’t surprise me, but today looks like an attractive opportunity to buy more shares. When the time comes for me to rebalance my portfolio, Rio Tinto will be near the top of my list of stocks to buy.

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.

Charlie Carman has positions in Rio Tinto plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Abstract 3d arrows with rocket
Investing Articles

I think these are my best growth shares to buy with £1,000

Jon Smith talks through some shares to buy that he likes for next year, with a particular focus on retail…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

2 terrific cheap shares I’d snap up before it’s too late!

Our writer wants to capitalise on cheap shares now before any potential market rally and identifies a couple of stocks…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

While the US stock market booms, the FTSE 100 lags behind. Or does it?

In November, global stock markets had their best month in over three years. Meanwhile, the UK's Footsie keeps falling further…

Read more »

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

What should I buy for my Stocks and Shares ISA in 2024?

From 6 April 2024, UK adults qualify for a new Stocks and Shares ISA allowance of £20,000. But what assets…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Could this FTSE 100 stock be like buying Apple shares in 2009?

Investors who bought Apple shares after a 100% gain in 2009 have done pretty well for themselves. Could FTSE 100…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Small-Cap Shares

2024: a once-in-a-decade chance to build wealth with penny stocks?

A lot of penny stocks and small-cap shares have tanked over the last two years. And Edward Sheldon now sees…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

3 reasons the Rolls-Royce share price can keep going higher

It might be the top-performing FTSE 100 stock of 2023, but Stephen Wright thinks the Rolls-Royce share price can go…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

2 dirt cheap value stocks I’m buying

These two FTSE 350 value stocks have performed miserably in 2023. However, Andrew Mackie expects their fortunes to turn in…

Read more »