Buy Rio Tinto plc (ADR) (RIO)?

LONDON — This is either a lousy time to buy the big mining companies or a great one. Just look at Rio Tinto plc (ADR) (LSE:RIO) (NYSE:RIO) . Its share price is down nearly 30% since hitting a 52-week high of around £38 in mid-February. Does that make it cheap at under £27, or is it still too pricey? And is now the time to buy it?

Rio Tinto plc (ADR) (NYSE:RIO) (LSE:RIO)

The commodity party was great while it lasted, fuelled by the twin spirits of Chinese growth and quantitative easing, but now both these punch bowls are being withdrawn at the same time. Beijing has turned from party animal to party pooper, as manufacturing slows, debts spiral and the government battles to curb its shadow finance system. In the U.S., Federal Reserve chairman Ben Bernanke is looking to call time. For Rio Tinto plc (ADR) (NYSE:RIO), the carnival could be over.

It was already in trouble, after posting its first profits drop in 18 years at the start of this year. That was largely due to $14 billion worth of writedowns, which finished chief executive Tom Albanese’s 30-year career at the company. His successor Sam Walsh has responded by cutting costs, reducing headcount and pledging to spend money more carefully. Rio Tinto plc (ADR) (NYSE:RIO)’s first-quarter operations review was positive, showing “solid performance”, despite weather disruptions. Its two major growth projects, in Pilbara, Western Australia, and Mongolia, are on track. Iron ore production beat expectations, with higher production making up for falling prices. Rio had also declared a full-year dividend of $1.67, up 15%, beating forecasts. That puts it on a yield of 4.1%, beating the FTSE 100 index average, which makes it tempting for income seekers. Better still, the dividend is covered three times, so it should be solid. Recent share price weakness is mostly due to macroeconomic misery. Don’t blame it on Rio Tinto plc (ADR) (NYSE:RIO).

Rio Grande
Rio trades at just 8.1 times earnings, similar to rival BHP Billiton Limited (ADR) (NYSE:BHP) at 8.3 times earnings, whose yield is similar at 4.3%. That looks tempting, especially with forecast earnings per share (EPS) growth of 11% in 2013 and 11% in 2014. At the Fool, we love buying good companies on bad news. Clearly, we’re not the only ones. Merrill Lynch has Rio Tinto plc (ADR) (NYSE:RIO) marked as a buy, with a target price of £39.75. Deutsche Bank (target: £44.67) and JP Morgan Cazenove (target: £45.20) are even more bullish. Yet I’d recommend drip-feeding money into this stock, because there could be even better opportunities ahead.

The article Should I Buy Rio Tinto? originally appeared on Fool.com.

Harvey Jones owns shares in BHP Billiton Limited (ADR) (NYSE:BHP). The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!