The resumption of industrial operations in the second half of 2020 marked the onset of an increase in demand for basic materials. With commodity prices rising substantially, investors are engaging in indirect commodity trades to profit from the flourishing markets. This is evidenced by ProShares Ultra Basic Materials ETF’s (UYM) 170.5% returns over the past year compared to S&P 500 Trust ETF’s (SPY) 47.9% gains over the period.
With the reopening of manufacturing and industrial operations, the demand for basic materials is expected to continue rising in the near term. Also, the White House’s proposed American infrastructure plan is likely to raise commodity prices further, owing to global supply constraints. In addition to these positives, because many basic materials companies pay substantial dividends, this industry offers solid investment opportunities amid troublesome market volatility and fluctuating Treasury yields.
Rio Tinto Group (RIO)
Headquartered in London, RIO explores for, mines, and processes mineral resources worldwide. The company operates through four segments—Iron Ore, Aluminum, Copper & Diamonds, and Energy & Minerals. It also owns and operates open pit and underground mines, mills, refineries, smelters, power stations, and research and service facilities.
On May 3, RIO’s ISAL smelter in Iceland received the Performance Standard Certification for responsible aluminum production from Aluminum Stewardship Initiative (ASI). The certification highlights RIO’s leadership in sectors such as automotive, construction and packaging.
ELYSIS, a RIO-Alcoa Corporation (AA) that delivers innovative aluminum smelting, selected RIO’s Alma smelter on April 20 for the first installation and demonstration of inert anode technology at 450 kiloamperes (kA) commercial size. The government of Quebec is investing C$20 million in manufacturing these 450 kA cells and other required equipment. Using clean hydropower and ELYSIS’ technology, RIO hopes to reduce the carbon footprint of its production at Quebec facilities.
RIO’s consolidated revenue increased 3.3% year-over-year to $44.61 billion for the fiscal year ended December 31. Its gross product sales from its iron ore segment were $27.51 billion, representing a 14.3% rise from the prior-year period. The company’s operating profit increased 46.8% year-over-year to $16.83 billion. RIO generated $15.88 billion in net cash from its operating activities for the year, representing a 6.5% improvement year-over-year. The company’s net earnings for the year came in at $9.77 billion, up 22% from the prior year. Also, its EPS increased 23% year-over-year to $5.99.
A $12.60 consensus EPS estimate for the fiscal period ending December 31, 2021 represents a 63.8% improvement year-over-year. The $5.69 billion consensus revenue estimate for the fiscal year ending December 2021 represents a 29.3% rise year-over-year.
The stock has gained 93.1% over the past year, and 47.8% over the past six months. The stock distributes $6.18 in dividends annually, which translates to a 7.3% dividend yield. RIO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality, Growth, Stability, and Momentum. We have also graded RIO for Value and Sentiment. Click here to access all RIO’s ratings.
RIO is ranked #3 of 42 stocks in the Industrial – Metals industry.
Fortescue Metals Group Limited (FSUGY)
Headquartered in Australia, FSUGY explores for, develops and processes iron ore deposits. The company operates through two geographical segments—China and Other. It also explores for copper and gold deposits and provides port towage services. Its projects include Chichester Hub, Solomon Hub, Port Hedland, Eliwana Mine and Rail, and Iron Bridge Magnetite.
On April 16, FSUGY announced f that it exported more than 1.5 billion tonnes of iron ore from its Pilbara operations, representing a significant milestone for the company. In March, the company completed a $1.50 billion offering of senior unsecured notes at an interest rate of 4.4%. The company plans to repay its $750 million 2022 senior unsecured notes, and other debts, with the proceeds from this offering.
FSUGY’s subsidiary, Fortescue Future Industries Pty Ltd (FFI), and Port of Açu, the largest privately owned deep-water port-industrial complex in Latin America, signed a memorandum of understanding (MOU) in late February. Under the agreement, the companies will conduct development studies in installing hydrogen-based green industrial projects in Rio de Janeiro, Brazil. FFI’s renewable power and green hydrogen opportunities are expected to drive further sustainable industrialization of the port, including production of green steel, fertilizers, and other sustainably manufactured industrial products.
For the half-year ended December 31, FSUGY’s operating sales revenue came in at $9.34 billion, which represented a 43.9% rise year-over-year. The company’s gross profit was $6.26 billion, up 75.7% from the prior-year period. Its $4.41 billion in net cash inflow from operating activities represents a 41.6% rise year-over-year. Its net profit after tax was $4.08 billion for the half-year, up 66.5% year-over-year. Also, its EPS increased 66.6% year-over-year to $1.32.
The company pays $4.48 in dividends annually, which translates to a 12.9% dividend yield. It has gained 151.4% over the past year.
Analysts expect FSUGY’s revenue to improve 61.1% year-over-year for the fiscal year ending June 30, 2021 to $20.65 billion.
FSUGY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock has a B grade for Value, Momentum, and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see FSUGY’s ratings for Growth, Sentiment, and Stability here.
FSUGY is ranked #2 of 53 stocks in the Miners – Diversified industry.
Sibanye-Stillwater Ltd. (SBSW)
Headquartered in South Africa, SBSW is an independent, global precious metals mining company. The company’s portfolio includes its platinum group metal (PGM) operations in the United States, South Africa, and Zimbabwe; gold operations and projects in South Africa; and copper, gold and PGM exploration properties in North and South America.
SBSW and Johnson Matthey (JMAT), a global leader in sustainable technologies formed a strategic partnership on March 19 to identify and develop solutions to drive decarbonization and the more efficient use of critical metals, such as PGMs and metals used in battery technology. Both companies will combine their extensive expertise in metals recycling to improve current technologies, particularly for ‘difficult to recover’ materials.
SBSW’s revenue increased 31.1% year-over-year to $4.44 billion for the second half-year ended December 31, 2020. Revenue from U.S. PGM operations came in at $1.36 billion, up 28.5% year-over-year. Its net profit was $1.28 billion for the half-year, which represented a 298.2% rise from the prior-year period. The company’s earnings were $1.22 billion, up 5288.5% from the prior-year period. Also, its EPS increased 4200% year-over-year to 43 cents.
Analysts expect SBSW’s revenue to increase 43.3% year-over-year to $12.51 billion for the fiscal period ending December 2021. The stock has gained 136.3% over the past year, and 70.7% over the past six months. SBSW closed yesterday’s trading session at $19.12. The stock distributes $0.98 in dividends annually, which translates to a dividend yield of 5.1%.
It’s no surprise that SBSW has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock has a B grade for Value, Growth, Momentum, and Sentiment. Click here to see the additional ratings for SBSW (Stability and Quality).
SBSW is ranked #3 in the Miners – Diversified industry
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RIO shares were trading at $87.16 per share on Tuesday afternoon, up $0.21 (+0.24%). Year-to-date, RIO has gained 21.24%, versus a 11.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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