The mining sector is one of the most dynamic yet controversial industries to be investing in. When we talk about mining stocks, there are a plethora of different commodities to explore. There is silver, gold and iron ore, of course, but beyond that there are rare earth minerals that make our daily lives convenient. Tungsten, of which China is a primary producer, is important for everything from lightbulbs to the interconnect material in integrated circuits. One rare earth mineral that has received much attention in recent years is lithium carbonate. Lithium is a key component in the development of lithium-ion batteries, which not just go into our smartphones but also into electric vehicles (EVs).
Because commodities prices are inherently volatile and rely on a stable macroeconomic environment to drive demand in end-markets, the public shares of mining companies have struggled over the past 12 months. Now since they’re trading at attractively low multiples, below are three mining stocks that are must-haves for your portfolio.
Rio Tinto (RIO)
Rio Tinto (NYSE:RIO) is a diversified mining corporation with operations all around the world. The miner has extensive expertise in iron ore, aluminum and copper extraction. In 2023, Rio Tinto raked in $32 billion in revenue and $20 billion in EBITDA from iron ore. Similarly, the U.K.-based miner made $12 billion from sales of aluminum, creating $2.3 billion worth of EBITDA. While iron prices had rebounded, the average price of aluminum dipped, resulting in compressed growth and margins for the sector. As a result, Rio Tinto’s iron ore division accounted for around 80% of its profits. In the first quarter of 2024, Rio Tinto reported another round of mixed mining.
However, what investors can be excited about is Rio Tinto’s juicy dividend. Despite profit headwinds, Rio Tinto declared a dividend of $2.58/share, up from $2.25/share in 2022, and also above what many analysts had been predicting. RIO’s share price has fallen 11.2% for the year and its stock trades at 9.0x forward earnings. For any investor betting on long-term commodity performance, RIO is a must-have in the portfolio.
BHP (BHP)
BHP (NYSE:BHP) is another mining giant that competes directly with Rio Tinto in its production markets. That is, BHP mines iron ore, copper and even coal. The Australian mining group has operations in countries across the world, spanning Asia, North and South America and Australia. Similar to Rio Tinto, BHP’s first-half results for fiscal year 2024, which ends in June, came in higher than Wall Street analysts had been predicting. BHP raked in $14 billion in adjusted EBITDA, as iron ore prices buoyed the miner’s top-line growth to 6% year-over-year.
This option in mining stocks also declared a $0.72/share dividend, which was higher than the 0.70/share dividend analysts had expected. A higher-than-expected dividend should give investors confidence that BHP is feeling somewhat optimistic about the future of commodities price. BHP’s largest end-market is China, which has delivered mixed growth but will likely begin to rebound in the coming months.
BHP trades at 10.3x forward earnings.
Albemarle (ALB)
Albemarle (NYSE:ALB) is a diversified chemicals company that has mining operations in lithium. In particular, Albemarle mines lithium compounds, including lithium carbonate, lithium hydroxide and lithium chloride. These rare earth minerals are vital to the development of lithium-ion batteries that go into a range of consumer electronics products and into electric vehicles. EVs have been a burgeoning market for some years now due to government subsidies and shifting consumer preferences, but higher interest rates coupled with elevated inflation have put a dent into that growth. That is, demand for EVs has started to slump, putting pressure on lithium producers’ sales and earnings growth.
Albemarle’s net sales have already begun to decline dramatically in 2024, due to depressed lithium prices. However, like all commodities cycles, the lithium slump will not last forever. As I have noted in a previous article, Albemarle validated that assertion by continuing to expand production of Salar de Atacama, one of the largest lithium deposits in the world in northwestern Chile.
Having exposure to ALB’s extensive lithium platform could be a winning bet as the market for the rare earth mineral returns to normalcy.
On the date of publication, Tyrik Torres 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
