Is the Rio Tinto Limited (ASX: RIO) share price a buy?
This calendar year has been a bumpy ride for shareholders. We have seen the Rio Tinto share price rise 20% since the start of the year, but it’s actually down 14% since the high at the start of July.
As you can imagine, Rio’s share price graph looks similar to the iron price graph over the past year. There has been an increase of the iron ore price since the start of the year, but a decrease since July. A lot of Rio Tinto’s performance comes down to what the iron ore price does, it’s still higher than it has been for most of the past five years except during 2019.
The two big things that Rio Tinto has more input about is its costs and where it decides to put its capital. Recently the big miners have been putting a lot of their capital into the pockets of shareholders with big dividends and share buybacks.
At the current resource prices, Rio Tinto will generate around $10 billion of free cash flow in 2019.
Rio Tinto is investing in technology and automation to improve its productivity and reduce costs over the coming years. It’s already utilising autonomous trucks and autonomous drills.
Data analytics and AI is helping reduce materials handling down time and forecasting ship arrival times (which reduce demurrage costs). Rio Tinto has also outlined how it’s optimising its orebodies and adding new revenue streams where it can generate battery-grade lithium carbonate from waste streams, which could make it the largest lithium carbonate producer in the US.
Rio Tinto is valued at just 11x FY20’s estimated earnings with a forecast grossed-up dividend yield of 8.9%. But, I think it makes a lot more sense to buy resource shares at closer to the bottom of the cycle rather than the top.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019