Mining stocks

Investment Analysis Clubs Macro Economic Trends and Risks
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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

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It’s possible that the overbuilding in China that supported the high price may not re-occur. That would reduce sales of materials.

Yes you seem to have a handle on these stocks Wendy … earnings are forecast to recede slightly, but the price of these two, RIO and BHP, does see to give a good return.

I had thought they were off the boil because of fears of weakening economies thanks to the Fed. This may be partly it but also they were perhaps bid up on the electric car boom? Electric cars need more minerals … whilst now production is limited (so VW tell me) actually by the semiconductor shortage. Which may not last - whereupon demand for minerals would grow again.

My own view would be that the bad news is already in the price and these are good value. RIO has a PE of 6 and pays a dividend of 11% p.a. …

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It’s not just China. The world economies are pretty much all circling the bowl (projected for 2023). Sooner or later, someone will start making something again and these guys will do fine. Now is likely not the right time to pick them up, but they will do gangbusters on the other side of the curve. Both RIO and BHP (along with some VALE and some gold miners)form a large chunk in my portfolio and personally, I think I’m just going to wait things out.

Jeff

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Yep, I was looking carefully this morning with a friend at Palladium and Platinum mining.

Then I realized car sales globally are or will be plummeting.

Putin wont get much leverage this winter.

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Mining company stocks, BHP and RIO, currently have low P/E ratios and high dividend yields.

These large industrial/commodity stocks typically have low P/Es and I doubt that the 12% dividend will last long

It’s possible that the overbuilding in China that supported the high price may not re-occur. That would reduce sales of materials.

I think everyone remembers Rio Tinto from the outrageous acquisition of Alcan ($38bil) or what Dick Evans, (CEO Alcan) referred to as
“. . . worst decisions ever, the largest metals and mining transaction in the history of the world at the high point in the commodity cycle.”
The bad timing of the acquisition at the height of the housing bubble didn’t help matters

You point out correctly, China’s softening market not a bonus for Rio Tinto
China by far is accounting for about 60% of sales in 2021.(particularly for iron ore which has disproportionately benefited from the boom in infrastructure and real estate investment in China)
According to Morningstar

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What is your opinion of this?

Love it! I made a quick $1200 in GDXD* today.

Dan, lucky once in a blue moon

  • (MicroSectors™ Gold Miners -3X Inverse Leveraged ETNs)