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…