The headlines are filled with stories about the worst-hit FTSE 100 shares in the stock market crisis. Banks, airlines, anything related to leisure and hospitality, they’re all there. But today I’m going to look at one sector that seems out of fashion.
Many investors avoid the mining sector as it has a reputation for being cyclical. As economic cycles spread, demand for metals and minerals rises and falls, and prices can swing quite widely. On top of that, sentiment is moving firmly away from coal.
But when it comes to investing in economic essentials, there are few things that see greater long-term demand than iron, copper, aluminium, and all those other raw materials. Here’s what the big seven FTSE 100 mining companies look like at the moment:
|Company||Ticker||Fcast P/E||5y SP growth||Fcast dividend||5y dividend*|
*Due to the cyclical nature of mining dividends, I’ve averaged out some earlier dividends, and some of these are approximations. Glencore has come back from several years of no dividend.
Forecasts are based on the most forward-looking currently available, to try to get as far beyond the 2020 Covid-19 effect as possible. I’ve included five-year share price growth and five-year dividend rises.
Beating the FTSE 100
All have massively beaten the FTSE 100, which has managed just 9% growth over five years.
Polymetal, stands out. But it’s a gold miner, and that business has a whole different dynamic compared to the industry as a whole. Now, I think gold miners can be much better investments than the metal itself. But I’d leave them out when considering the mining business as a whole.
As the world’s biggest silver miner, Fresnillo is partially in that category too. Silver does have many actual industrial uses. But I think Fresnillo would need its own separate analysis rather than just being lumped in with miners in general.
Antofagasta is a copper miner, and copper prices have been surging over the past six months. And that is likely to be behind the stock’s high P/E multiple. Of the rest of the FTSE 100 miners, Anglo American’s impressive share price growth deserves a closer look. In this case, there’s something of a recovery aspect to it as the company has been coming back from a tough spell. But I still see good value.
Going on these valuations, I’d tentatively narrow it down to Anglo American, BHP Group and Rio Tinto. All three are on modest P/E valuations even after a strong five-year share price performance. And they’re all on very attractive forecast dividend yields.
With a long-term view, I’d buy into the FTSE 100 mining sector. And to exploit its cyclical nature, I’d top on on the downturns.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.