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lasted, fuelled by the twin spirits of Chinese growth and quantitative easing, but now both these punch bowls are being withdrawn at the same time.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

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

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!