The recovery in steel demand with the fast-paced economic recovery has been driving iron ore prices to record highs. Now that China, one of the world’s largest importers of iron ore, is back in the market in the wake of COVID-19 pandemic disruptions and is experiencing a construction boom, the demand for the commodity is expected to continue rising. The iron ore industry’s solid performance over the past year is evident in iShares MSCI Global Select Metals & Mining Producers ETF’s (PICK) 126.1% returns over the past year versus the SPDR S&P 500 Trust ETF’s (SPY) 46.1% gains over this period.
High iron ore prices are encouraging mass production, which is spurring increasing investor interest. Overall, a recovering economy, soaring demand and high business confidence have been driving solid industry growth. The global market for iron ore pellets is expected to grow at a 3.7% CAGR of 3.7% over the next six years.
Because the spike in iron ore prices is expected to continue in the near term, we believe BHP Group (BHP), Rio Tinto Plc (RIO), and Labrador Iron Ore Royalty Corporation (LIFZF) are well positioned to benefit.
BHP Group Ltd. (BHP)
Based in Melbourne, Australia, BHP is a leading natural resources company that operates through Petroleum, Copper, Iron Ore, and Coal segments. The company is also involved in the exploration and mining of copper, silver, zinc, molybdenum, uranium, gold, and energy coal.
This month, BHP became one of the founding members of the Maritime Decarbonization Center to be set up in Singapore. The center will be a focal point for experts in the global maritime industry to develop technologies and collectively come up with innovative solutions.
Also this month, BHP, along with Oldendorffs and GoodFuels, conducted its first marine biofuel trial in Singapore to understand the functioning and importance of biofuel as a low-carbon fuel for BHP’s future key shipping routes. The collaboration should allow BHP to enter the Asian market and drive further business growth.
BHP’s profit from operations increased 17% year-over-year to $9.75 billion in the half year ended December 31. The company’s net operating cash flow increased 26% from the year-ago value to $9.37 billion, while its underlying EBITDA increased 21% year-over-year to $14.68 billion over the period. Furthermore, BHP’s underlying profit rose 16% from the prior-year quarter to $6.04 billion.
Ae $4.90 consensus EPS estimate for the fiscal period ending June 30, 2021 represents a 36.7% improvement year-over-year, while the $56.04 billion consensus revenue estimate for the same period represents a 30.5% increase from the same period last year. The stock has gained 89.6% over the past year.
BHP’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BHP is also rated a B for Momentum, Stability, and Quality. Within the D-rated Industrial – Metals industry, it is ranked #7 of 42 stocks.
To see additional POWR Ratings for Growth, Value, and Sentiment for BHP Click here.
Rio Tinto Plc (RIO)
Headquartered in London, RIO mines and processes mineral resources, including iron ore, aluminum, copper, diamonds, titanium and borates worldwide. In addition, the company owns and operates underground mines, mills, refineries, power stations, and service facilities.
This month, RIO agreed with Turquoise Hill Resources (TRQ) on a financing plan for Oyu Tolgoi, an underground project in Mongolia, which is expected to become one of the world’s largest copper mines and a significant contributor to the Mongolian economy in the coming years. The strategic collaboration should allow RIO to create shareholder value and deliver long-term growth.
Also, this month, RIO began the production of battery-grade lithium from waste rock at a lithium demonstration plant in the United States, which will be run throughout 2021. This move demonstrates RIO’s innovative thinking to meet the demand for emerging commodities like lithium and expand its reach in the boron market.
For 2020, RIO’s net cash from operating activities has increased 6% year-over-year to $15.88 billion. Its underlying EBITDA grew 13% year-over-year to $23.90 billion, while its sales revenue increased 3% from the year-ago value to $44.61 billion. The company’s EPS increased 21% year-over-year to $769.6 for 2020.
The Street expects RIO’s revenue for the fiscal period ending December 31, 2021 to be $57.70 billion, representing a 29.3% year-over-year growth. The company’s EPS is likely to increase 63.8% for its fiscal year 2021. RIO’s stock has gained 86.5% over the past year.
It is no surprise that RIO has an overall A rating, which indicates a Strong Buy in our proprietary rating system. It is graded a B for Growth, Value, and Momentum.
Beyond what we’ve stated above, we have also given RIO grades for Sentiment, Stability, and Quality. Get all the RIO ratings here. In the same industry, it is ranked #2.
Labrador Iron Ore Royalty Corporation (LIFZF)
Formerly known as Labrador Iron Ore Royalty Income Fund, LIFZF is a Canadian investment company that holds interests in Iron Ore Company of Canada, a leading North American producer and exporter of premium iron ore pellets and high-grade concentrate. It holds a 15.10% equity interest in IOC and receives a 7% gross overriding royalty and a 10 cent per tonne commission on all iron ore products produced, sold and shipped by IOC.
During the fourth quarter, ended December 31, 2020, LIFZF’s revenue increased 37.4% year-over-year to $54.4 million, while its net income rose 56% from its $73.9 million year-ago value. Its EPS rose 56.8% year-over-year to $1.16. Also, its cash flow from operations increased 46.6% from its year-ago value to $116 million.
LIFZF is expected to witness 25.6% revenue growth to $200.6 million for the fiscal period ending December 2021. Over the past year, its stock has gained 137.2%.
LIFZF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has a B grade for Momentum, Quality, and Stability. Among the 53 stocks in the F-rated Miners – Diversified industry, it is ranked #7.
Click here to see the additional POWR Ratings for LIFZF (Growth, Value, and Sentiment).
Want More Great Investing Ideas?
BHP shares were trading at $74.24 per share on Thursday afternoon, down $1.49 (-1.97%). Year-to-date, BHP has gained 19.59%, versus a 11.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|BHP||Get Rating||Get Rating||Get Rating|
|RIO||Get Rating||Get Rating||Get Rating|
|LIFZF||Get Rating||Get Rating||Get Rating|