These two FTSE 100 stocks are on the rise – is now the time to buy?

As the mining sector enjoys a boost from China, this Fool UK contributor has his eye on two promising FTSE 100 stocks.

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Image source: Anglo American plc

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China has hit the global mining industry with a surprise – a sudden increase in manufacturing that demands fresh raw materials from around the world. As a result, major mining companies have enjoyed a sudden uptick in production, prompting investment giant UBS to flip two major mining-related FTSE 100 stocks from ‘neutral’ to ‘buy’.

These two companies are Anglo-American (LSE: AAL) and Antofagasta (LSE:ANTO), both of which enjoyed a surge in share price last week when the news broke. I’m investigating whether the price increases will be short-lived or if these shares still have some room to grow.

Anglo-American

Anglo-American is one of the largest mining conglomerates in the world, with a strong presence in South Africa and a focus on diamonds and platinum. Founded in 1917, the London-based firm employs 90,000 staff in 15 countries worldwide.

The buy signal from UBS is a positive indicator, but I’m digging deeper to discover if the company has long-term growth potential. With almost double the amount of assets as liabilities, Anglo-American’s debt-to-equity (D/E) ratio of 45.3% is reassuring — although this is higher than five years ago. Still, I think the future looks promising for Anglo-American, with earnings forecast to grow by 15.4% per year and deliver a return on equity above 10% in three years.

Impressive numbers – but there are some red flags.

Anglo-American’s profit margins in 2023 are significantly lower than in previous years, and from what I can tell the company may struggle to cover its dividend yield of 4.4% with current cash flows. However, these statistics may improve if increased manufacturing continues to push up prices. In the short term, I think Anglo-American has some decent growth potential, but I’ll look for consistent improvement before I can be assured of long-term gains.

Antofagasta

Headquartered in London, Antofagasta is a multinational mining company founded in the late 1800s. Originally a railroad project carrying copper between Bolivia and Chile, it now runs several mining operations worldwide.

With a market cap of £14.4bn and earnings of £1.6bn, Antofagasta’s price-to-earnings (P/E) ratio is 11.5x – high enough to suggest positive sentiment while still below the three-year UK mining industry average of 23x. I believe this puts it in a good position to outperform expectations in the coming year. Even with the recent price rise, some analysts estimate Antofagasta to be 15% below its fair value, with revenue forecast to grow by nearly 8% per year.

However, this sudden price rise is no guarantee of continued growth. Long-term analysis has forecast Antofagasta’s earnings to decline by 1.3% per year over the next three years, with earnings per share (EPS) to decline by 0.9%. So long as China continues its manufacturing spike, I think Antofagasta has good short-term potential. However, I’ll keep a close eye on its financials over the coming months before making any long-term decisions.

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.

Mark David Hartley has no position in any of the shares mentioned. 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.

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