Watching the mining companies race downhill of late may be terrific preparation for taking in the 2014 Winter Olympics from Sochi, Russia. But it can be a gut-wrenching exercise from an investment perspective.
I’m referring first to Brazil’s Vale SA (ADR) (NYSE:VALE) and London-Based Rio Tinto plc (ADR) (NYSE:RIO), two behemoth companies whose shares have plummeted by 34% and 28%, respectively, since the first clock ticks of 2013. However, if I recall correctly, a key tenet of investing involves buying low and selling high. On that basis, the two companies appear to provide patient Fools with extremely compelling opportunities for future profits.
Hardly a Vale SA (ADR) (NYSE:VALE) of tears
Rio de Janeiro-based Vale SA (ADR) (NYSE:VALE), for example, sports a sizable $73.5 billion market capitalization and produces an array of minerals that includes iron ore and pellets, copper, manganese, ferroalloys, cobalt, platinum, nickel, and fertilizers. It also mines precious metals and maintains a variety of Brazilian mining-related transportation systems, including railroads and ports.
But what’s most likely to pique your interest in the company are metrics that juxtapose a forward P/E ratio at a paltry 6.45 times with an attractive PEG ratio that sits on the shy side of 0.50. (Remember that the PEG ratio is the quotient derived from dividing a company’s P/E by its anticipated growth rate. So numbers below 1.0 become especially intriguing.) At the same time, Vale SA (ADR) (NYSE:VALE)’s operating margin nudges a healthy 30%, and it offers an alluring 5.30% forward annual yield. What’s more, a significant portion of its price slide may be tied to weakness in the Brazilian Real.
Robust Rio Tinto plc (ADR) (NYSE:RIO)
Rio Tinto plc (ADR) (NYSE:RIO) presents a similar picture. The slightly larger — $80 billion market cap — company cranks out all manner of aluminum products, along with copper, molybdenum, coal, uranium, and iron ore, among others. It also produces both silver and gold.
At 7.48 times, the company’s forward P/E represents only a slightly higher valuation than Vale SA (ADR) (NYSE:VALE)’s. Similarly, its PEG ratio sits a smidgen atop 0.50. At approximately 22.5%, its operating margin is about 25% below its Brazilian competitor’s. The company’s forward annual dividend yield is 4.20%. It’s also worth noting that half of the analysts who follow Rio Tinto plc (ADR) (NYSE:RIO) rate it a buy, while the remainder all accord it a strong buy rating.
Pour in petroleum
I’m slightly less sanguine about the largest of the world’s miners, Melbourne-headquartered BHP Billiton Limited (ADR) (NYSE:BHP).