In today’s zero interest rate environment, investors continue to search for yield. While traditional sources of income, such as telecom or utilities stocks, continue to accomplish the goal of providing suitable income, savvy investors would be wise to turn to the copper industry.
While it may seem surprising, the copper industry contains some large-caps that provide solid income. Making things even better, these stocks are trading for reasonable valuations.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has a $30 billion market value and engages in the exploration, mining, and production of mineral resources. The company primarily explores for copper, gold, and silver. However, the company had a bumpy ride in recent years as a result of volatile prices of gold and copper.
The stock traded at $60 at the beginning of 2011 and has steadily fallen to its current level of $31 per share.
Southern Copper Corp (NYSE:SCCO) is comparable to Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), holding a $27 billion market capitalization. Southern Copper Corp (NYSE:SCCO) engages in mining, exploring, producing, smelting, and refining copper and other minerals in Peru, Mexico, and Chile.
Rio Tinto plc (ADR) (NYSE:RIO) also has considerable copper exposure, but operates a diversified mining business. The company engages in exploration, discovery, and processing of such mineral resources as aluminum, gold, silver, diamonds, coal, iron ore, and of course, copper.
Rio Tinto plc (ADR) (NYSE:RIO) has a long history, having been founded in 1873, and is headquartered in the United Kingdom. It’s also the biggest copper company of the three presented here, with a market value of $83 billion. Investors interested in international diversification may also like Rio Tinto plc (ADR) (NYSE:RIO) because of its extensive global footprint, operating in China, Japan, Australia, the United States, and Europe.
Lots of value and income to be dug up
Surprisingly, despite the volatile nature of the underlying materials these companies depend on, the stocks in this space trade for reasonable valuations and offer high dividend yields that are in excess of the yield on the broader market.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Southern Copper Corp (NYSE:SCCO) trade for 10 times and 15 times their trailing twelve-month earnings, respectively, well below the trailing P/E on the broader S&P 500 Index that is currently in the mid-teens.
Rio Tinto plc (ADR) (NYSE:RIO), meanwhile, reported operating losses over its trailing twelve months, but trades for a forward P/E ratio of 6.5 times.
In addition, whereas the S&P 500 provides investors with a divided yield hovering around 2% annualized, both these stocks offer yields far above that. New investors can secure yields of 4% on Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and 2.5% on Southern Copper Corp (NYSE:SCCO) at recent prices. Rio Tinto plc (ADR) (NYSE:RIO) follows suit, providing a nearly 4% dividend yield at current prices.
The Bottom Line
Of course, investors should understand that the underlying financial performance, and by extension stock prices, of these companies depend largely on how copper trades. That being said, assuming that the price of copper slows its downward trend, these companies might prove to be bargains at today’s prices.
Investors may need a thick skin to enter the copper industry, as financial performance can vary due to swinging economic climates and volatile commodity prices. At the same time, the three companies mentioned above have the potential to provide investors the best of both worlds: market-beating capital gains as well as dividend returns, should the global economy continue its slow but gradual recovery. Therefore, investors looking to diversify into the basic materials sector would be wise to give these stocks further consideration.
The article These Copper Miners Look Attractive originally appeared on Fool.com and is written by Robert Ciura.
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