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Why The Tipsters Like Rio Tinto plc And Glencore PLC More Than Antofagasta plc And Anglo American plc

The mining sector has been suffering as commodities prices have slumped, but the City’s analysts are starting to turn bullish about the sector again now. Which do they like best?

They’re still fairly neutral, but just starting to edge positive, on Anglo American (LSE: AAL), with 11 out of 29 thinking the stock is a Buy and six saying Sell. There are 13 sitting Neutral, so it’s only a relatively small bullish stance overall. For Antofagasta (LSE: ANTO) the picture is similar, but with fewer wanting to make a commitment either way — 14 out of 24 can’t be swayed from Neutral, and of the rest we have six on Buy and four on Sell ratings.

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More optimism

But when we look at Glencore (LSE: GLEN) we see an altogether more optimistic picture. Of 26 recommendations, we have a full 14 telling us we should Buy the shares and just four suggesting we should Sell. Only eight are staying on Neutral ground. And for Rio Tinto (LSE: RIO)(NYSE: RIO.US) we see the biggest Buy to Sell ratio of them all, at 17 to four, with 10 remaining neutral.

So where are share prices set to go? The whole sector has been picking up in 2015, and looking at recent price targets for Anglo American we see an average of 1,431p. That’s 23% above the current price of 1,166p and very positive considering the weak Buy/Sell ratio. But at Antofagasta we have an average target of 756p, which is only 3p above today’s 753p price.

At Glencore we see an average target of 340p against a current price of 291p. That’s a premium of 17% and fits with the overall bullish recommendations stance. And leaving the best until last, the brokers are suggesting a price of 3,655p for Rio Tinto, which is a very nice 23% up on the current 2,996p share price.

Valuations

These price targets don’t quite match the balance of Buy and Sell tips, but there really is a wide range in individual brokers’ targets. So how do things compare with fundamental valuations?

Anglo American is on a forward P/E for 2015 of 12.7 with a 4.7% dividend yield forecast, with Antofagasta on a P/E of 16.3 and a 2% dividend yield.

Of the bookies’ favourites, Glencore shares are on a P/E of 14.3 and a forecast yield of 4.1%, with Rio Tinto predicted to yield 4.7% from shares on a P/E of 12.5.

Which to buy?

With the sector expected to head back to growth in 2016, I think any of these could do well, but I reckon these recommendations are pretty close to the money based on fundamentals and dividend yields — and Rio Tinto would be my pick of the lot too.

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Alan Oscroft has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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