Is Glencore PLC A Better Buy Than Rio Tinto plc Or BHP Billiton plc?

opencast.miningIt’s been a mixed 2014 thus far for investors in mining giants Glencore (LSE: GLEN), Rio Tinto (LSE: RIO) (NYSE: RIO.US) and BHP Billiton (LSE: BLT) (NYSE: BBL.US). That’s because, while Glencore and BHP Billiton are up 10% and 6% respectively (versus a flat performance from the FTSE 100), Rio Tinto is down 3% year-to-date.

However, will this level of performance be mirrored through the remainder of 2014 and beyond? Can Glencore continue to outperform its two rivals?

Mixed Prospects

Mixed performance is also expected with regard to next year’s earnings figures, with Glencore potentially offering investors a higher growth in profit than Rio Tinto or BHP Billiton. Indeed, Glencore is forecast to increase earnings per share (EPS) by 14% this year, followed by an increase of 38% in 2015. This compares very favourably to Rio Tinto, which is set to increase EPS by 12% next year, while BHP Billiton disappoints on this front, with a fall in EPS of 3% expected next year.

Different Valuations

However, Glencore’s strong growth prospects appear to be at least partly priced in by the market. For example, it currently trades on a price to earnings (P/E) ratio of 15.8, which is considerably higher than the P/Es of 10.8 and 12.5 for Rio Tinto and BHP Billiton respectively. Therefore, it is clear that value investors may prefer to stick with the cheaper, albeit slower growing, BHP Billiton and Rio Tinto, rather than seek out higher growth at a higher price.

Looking Ahead

Indeed, all three companies have their strengths and weaknesses. For example, Rio Tinto appears to offer the best mix of great value and strong growth prospects, but it relied on one commodity (iron ore) for over 90% of its 2013 earnings, thereby showing how little diversification it offers investors. On the flip side, BHP Billiton is very well diversified, but is set to post lower earnings next year. Meanwhile, Glencore, while it offers the highest potential growth rate, is already nearly 50% more expensive than Rio Tinto based on their respective P/E ratios.

So, with the mining sector’s outlook remaining uncertain and the macroeconomic outlook for China only beginning to improve, investors may be well advised to spread the risk among all three companies. That way, investors can tap into diversification, strong growth rates and great valuations.

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Peter owns shares in BHP Billiton.