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Are FTSE Mining Companies Cheap Right Now?

Mining companies are operating in a challenging environment but could now be the time to top up on commodity companies?

Alanna Petroff 24 August, 2012 | 10:38AM

Alanna Petroff:  A handful of FTSE 100 mining and commodities companies reported earnings this week. We heard from Glencore, BHP Billiton and Kazakhmys. Meanwhile, Lonmin on the FTSE 250 is facing major troubles after bloody clashes at its mine in South Africa. These developments have meant that commodity companies have been top of mind for many investors in the markets this week. Plus, miners do play a big role on the FTSE 100. So when miners are going up, generally the whole market starts moving up and vice versa. 

Is a company worth the price that the market is asking for its shares?

So, if you are looking to invest in miners right now, it does seem like uncertain times. Miners are having a difficult time. We’ve seen in the earnings that they are facing rising costs, as well as lower demand and lower prices for the commodities that they are selling. So it’s difficult times but if you are a long-term investor maybe now is the perfect time to get in. 

Now Morningstar has research on a number of the large cap mining companies on the FTSE 100. We specifically have research on Rio Tinto (RIO), BHP Billiton (BLT), Anglo American (AAL), Xstrata (XTA) and Glencore (GLEN). And you can see here that we have star ratings on each of the companies. You can also see a star rating for each company that Morningstar has research on, on Morningstar.co.uk at the top of [each equity’s] page.

These star ratings answer the question: “Is a company worth the price that the market is asking for its shares?” 

Now, these star ratings are calculated based on what the current value of the shares are in the market and what Morningstar believes the fair value of the company should be. So, for example, let's say you have a company where you see that it has five stars, that would indicate that Morningstar believes that the shares are very undervalued and this could be a time to get in for cheap. 

Alternatively, if you see a stock with three stars that indicates the stock is being fairly valued more or less by the market, but one or two stars would indicate that the stock is being overvalued in the opinion of Morningstar Analysts. 

Amongst the largest FTSE 100 mining companies are BHP Billiton and Rio Tinto. Now, we have research of course on both of those stocks and you’ll see that they have four star ratings, indicating that we believe their shares are slightly undervalued compared to the current market value. 

Now, they are not five-star rated, so they are not very undervalued, but our analysts believe that you could get a pretty good price on them right now. So, if you are interested in Rio Tinto or BHP Billiton and fitting them into your portfolio, take a look at our Morningstar research, see if they are right for you. You can also read our research about their latest earnings reports which just came out and you can see if you can fit them into your portfolio. 

From Morningstar, I am Alanna Petroff.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Anglo American PLC1,530.00 GBX1.16
BHP Billiton PLC1,907.50 GBX0.87
Glencore Xstrata PLC362.40 GBX0.53
Kazakhmys PLC296.90 GBX2.41-
Lonmin PLC229.80 GBX1.23-
Rio Tinto PLC3,213.50 GBX0.14
About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.