Mining company stocks, BHP and RIO, currently have low P/E ratios and high dividend yields.
Because of the way the Federal Reserve suppressed interest rates during the pandemic, all stocks were pushed higher as investors reached for yield. Now that the Fed has promised to raise interest rates, all stocks are dropping as the equilibrium shifts. Some investors who bought high-dividend stocks may be selling them to buy bonds, now that bond yields are higher.
The long-term chart shows that both stocks were overvalued and are still above their historical price channel. (More so for RIO than BHP.)
https://finance.yahoo.com/quote/RIO/
https://finance.yahoo.com/quote/BHP/
Both stocks are in “falling knife” mode now. (There’s a saying, “Don’t try to catch a falling knife.”) They will probably drop more.
In addition to the general fall in stock prices, the miners are heavily dependent on building in China. Due to serious debt problems, building is much less than before.
I researched both companies in Fidelity.
BHP is considered very high quality, undervalued and stable. Their financial stability is OK, not great. BHP’s EPS growth has been strong. Despite this, their equity summary score is only 3.1 (neutral to bearish) due to an expectation that the stock price will continue to fall.
RIO’s equity summary score is 8.3. The analyst is bullish. RIO’s quality and financial stability are high. Growth stability is low.
I tried to get the detailed analyst reports but they didn’t load for me. I don’t know why.
Both of these stocks are currently in a down-draft even though their long-term prospects are good. RIO is closer to its long-term average than BHP.
It’s possible that the overbuilding in China that supported the high price may not re-occur. That would reduce sales of materials.
What is your opinion of this?
Wendy