The recent collapse of stock prices in the mining sector presents investors who act now with an opportunity to collect solid double-digit annual gains for years to come. Even better, those who choose wisely can also collect generous dividend yields while waiting for these world-class mining businesses to return to fair value.
Mining supplies the basic foundation of our lives
Copper wiring brings electricity into our homes and delivers it to the appliances within that we depend upon to provide us with the conveniences we now take for granted. Iron ore is a base component in the production of steel that is used to construct the cars we drive and the planes in which we fly. Potash is a major component in the fertilizers we use to increase crop yields and provide ourselves with adequate food supplies to feed a growing population.
All of these base materials are supplied to the market by the global mining industry. When the global demand is strong and prices are high, all of the producers prosper; when prices fall, the weak players crumble, the strong businesses survive, and the stock prices of all competitors in sector get crushed.
Investors who buy shares of the obvious survivors during the weak periods are always richly rewarded when the inevitable uptrend occurs. Here are three picks that present excellent values for investors today, and pay handsome dividends while we wait for big gains in their stock prices.
Large size with the strength of steel
Brazil-based Vale SA (ADR) (NYSE:VALE) is the world’s largest producer of iron ore — the key base ingredient in the manufacture of steel — and the second-largest producer of nickel. It also produces kaolin, a clay type substance used as a pigment in paint and a filler material in the manufacture of rubber and plastics, and potash, used in the manufacturing of fertilizer.
Over the past 52 weeks, Vale SA (ADR) (NYSE:VALE)’s stock price has traded as high as $21.88 and currently sits almost 40% below that level at $13.15. The price to earnings ratio for 2013 is projected at a paltry multiple of 6.23. Considering the analysts’ consensus annual earnings growth rate projection of 20.2% for the next five years, the current P/E is difficult to explain from a fundamental perspective.
The strong dividend yield of 5.68% further enhances the attractiveness of this stock, and it requires only 32.76% of the income produced by the business to support it. Given its key role in supplying vital components to the steel and agricultural industries, Vale SA (ADR) (NYSE:VALE) offers a compelling investment opportunity at the current valuation.