Stock of the Week: Rio Tinto

Mining giant has paid bumper dividends since the pandemic, but can the commodity bull run be sustained?

James Gard 20 August, 2021 | 10:18AM
Facebook Twitter LinkedIn

Stock of the week post-it

Rival BHP (BHP) may have stolen the headlines this week for announcing plans to leave London but our Twitter followers have gone for Rio Tinto (RIO) in our mining-themed stock of the week. Despite being in the spotlight because of rising ESG concerns, miners are in a sweet spot in 2021 amid surging prices for commodities likes copper and iron ore. Copper in particular has been a lightning rod for the economic recovery from the pandemic and part of the “reflation trade” that has put global investors in bullish mode. But this week global stock markets have slammed into reverse and previously booming resources companies have sold off sharply. Fears over China’s growth, the Federal Reserve’s next move, and rising coronavirus cases worldwide have upset the upbeat narrative.

Rio Tinto’s shares have fallen around 10% this month alone, shedding some of the gains since autumn 2020 when the global economy started to pick up again. They’re off around 7% since the start of this week, having fallen from £56 per share to £52. That means that they are now closer to the fair value of £50 assigned by Morningstar analysts. “The shares remain overvalued, principally a function of near-record iron ore and copper prices. We expect both to cool and for longer-term earnings to decline as the benefit of China’s stimulus wanes and the post-Covid-19 bump to global economic growth subsides,” says mining analyst Matthew Hodge. Still, recent results were strong, although the comparison with the the Covid-affected first half of 2020 were bound to be flattering: net profit after tax for the first half of 2021 were $12.2 billion, compared with $4.5 billion in the first half of 2020, although the majority of this rise is down to the higher iron ore price.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

See All Our Stock of the Week Posts

Catch up Now

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.

Facebook Twitter LinkedIn

About Author

James Gard  is content editor for Morningstar.co.uk

 

© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement