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lasted, fuelled by the twin spirits of Chinese growth and quantitative easing, but now both these punch bowls are being withdrawn at the same time.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. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in 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!