Opinions
Ryan Bushell
Rio Tinto
RIO-N
WATCH
Oct 03, 2017
Stock price when the opinion was issued
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Is struggling given perceived weakness of China's economy. He's owned this a long time and won't sell it. RIO generates a lot of free cash, has a reasonable development pipeline, a great iron business and a good copper business. But traders may see near-term weakness given China's outlook.
Premium contentThe company is engaged in new iron ore, copper, and lithium projects worldwide -- looking to increase capital spending 33% to $9.5 billion. It trades at 9x earnings, 1.7x book and supports a 19% ROE. It pays a solid dividend, backed by a payout ratio under 67% of cash flow. We recommend setting a stop-loss at $49, looking to achieve $82 -- upside potential of 38%. Yield 7.3%
(Analysts’ price target is $82.20)Premium contentAs a leader of metal resources production, we reiterate RIO as a TOP PICK. Management is optimistic that a commitment to aluminum smelter development in Australia is supportive for the company's plans. We like that cash reserves are growing, while debt is retired. It trades at 9x earnings, under 2x book and supports a 20% ROE. The robust dividend is backed by a payout ratio of 70% of cash flow. We recommend trailing up the stop (from $49) to $58 at this time, looking to achieve $82 -- upside potential of 32%. Yield 6.2%
(Analysts’ price target is $81.93)Premium contentA safer bet in minerals is RIO, which trades at 11.37x earnings. It mines not only copper, but also aluminum, diamonds, gold and particularly iron ore. Also attractive is its solid 6.59% dividend yield, far higher than Teck's 0.84%, for example. Rio is a favourite of Stockchaser Michael O'Reilly who likes the company's growing cash reserves, declining debt and 20% return on equity.
If you believe that the iron price doesn't fall further, then a pretty decent buy here. For those who believe in his natural resource thesis over 5 years, you have to own it. Need to pay attention to the global economy, but especially the Chinese economy.
He's less concerned about 20% fluctuations in the stock price over time, and more concerned about long-term value and the sustainability of the dividend.
Premium contentOffering diversification globally into materials such as iron ore, aluminum, copper and lithium, we reiterate RIO as a TOP PICK. Analysts expect their copper production will grow over 30% over the next 3 years. It trades at 10x earnings, under 2x book and supports a ROE of 20%. The robust dividend is backed by a payout ratio under 60% of cash flow. We continue to recommend a stop at $58, looking to achieve $81 — upside over 25%. Yield 5.9%
(Analysts’ price target is $81.13)Likes materials, likes copper. Significant iron ore component (close to 60%), and iron ore hasn't been as strong. Asia is getting better, and China is strengthening. So that's positive. Long-term chart is very attractive. Trading below 200-week MA, he'd like to see it break out; if it can trade north of $65, thinks it would. Solid dividends and special dividends. Big cashflow. Might be just a bit early.
See his Top Picks.
As a bulk commodities miner, this is looking more interesting. The space has really perked up over the last 6 months. He is starting to see some signs of inflation and the things that are related to inflation. 2018 will be a key year as to whether we get the kind of recovery and move that we saw in the late 2007-2008 and 2010. He would be watching these types of companies.