With a potential economic resurgence in China underway, investors are eyeing stocks of companies that mine industrial metals. Of those, Rio Tinto (NYSE:RIO) stock stands out.
Rio Tinto is a global powerhouse in mining and metals, with vast operations in aluminum, copper, and other essential materials. This is a company whose stock has gone sideways for years but seems to be tracing a series of higher lows just as China might be bottoming.
And it’s more than China. The long-term case for the commodities that Rio Tinto mines relates directly to the global energy transition. For all these lofty goals to be met around decarbonization and a green future, the world needs more copper, cobalt and lithium to develop alternative energy sources like wind, solar, and of course, electric vehicles.
The nice thing about Rio Tinto is its strong position both financially and in terms of its mining operations.
Rio Tinto mines an array of commodities such as iron ore, aluminum, copper, diamonds, and industrial minerals like borates, titanium dioxide, and salt. Iron ore, its primary product, has a central role in the global steel industry. It is vital for various sectors including construction, transportation, and infrastructure. The diversity in Rio Tinto’s portfolio reduces risk as it is not overly reliant on a single commodity, which can be prone to price volatility. If China’s economy has in fact bottomed, one would think infrastructure spending would pick up in the country. In turn, this would put upward pressure on the very commodities Rio Tinto focuses on.
The Bottom Line on Rio Tinto Stock
This is a well-run company overall with a solid balance sheet. Rio Tinto stock is also inexpensive. And it’s not a small player — its market capitalization is over $112 billion.
Why would you want to allocate to expensive tech stocks when the price-to-earnings ratio for Rio Tinto is 11.21x? When the price-to-sales ratio is 2.1x? When 5-year revenue growth is nearly 6% in a sleeper cycle for commodities? No company should be more at the forefront of demand for industrial materials than this one.
To me this is a no-brainer. The long-term chart looks like it’s due to break out, and Rio Tinto stock is underinvested and unloved. There’s a lot of room for this stock to do well, and if you’re a contrarian on China, this could be one way to play it.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.