Over the past year, the industrial metal sector has faced several economic and geopolitical challenges. However, the metal industry's growth trajectory looks bright, with solid demand from the automotive, manufacturing, and infrastructure sectors.
In this article, we take a closer look at three fundamentally sound metal stocks Rio Tinto Group (RIO), Southern Copper Corporation (SCCO), and Anglo American plc (NGLOY), to help you determine whether they are worth your attention.
Before diving deeper into the fundamentals of these stocks, let’s discuss the factors shaping the industry’s growth.
The ongoing global economic recovery is expected to boost demand for construction, transportation, and manufacturing metals. The World Bank’s metals and minerals price index rose 10% in the first quarter of 2023, indicating a positive outlook for stronger demand in the face of supply disruptions for some critical metals.
Moreover, the increasing adoption of Electric Vehicles (EVs) is expected to drive the demand for industrial metals such as copper, nickel, and cobalt. According to the International Energy Agency (IEA), the number of EVs on the road is expected to reach 145 million by 2030, up from 11 million in 2020.
Governments and businesses increasingly invest in sustainable infrastructure projects, such as green buildings and renewable energy facilities. These projects require large amounts of industrial metals such as steel and aluminum. The Global Infrastructure Outlook estimates that $94 trillion in infrastructure investment is needed by 2040 to meet the global demand.
The global mining market grew from $2.02 trillion in 2022 to $2.14 trillion in 2023, exhibiting a CAGR of 6.1%. Moreover, the global metal and mineral market is projected to grow at a CAGR of 7%, reaching $10.65 trillion in 2027.
Thanks to growing demand as well as increased government investments, the industrial-metal sector is well-poised for growth in the long term. Given this backdrop, we believe quality metal stocks RIO, SCCO, and NGLOY are well-positioned to capitalize on the industry’s tailwinds. To that end, let's evaluate the fundamentals of the featured stocks.
Rio Tinto Group (RIO)
London-based mining and metals company RIO is involved in the global exploration and production of materials through four segments: Iron Ore; Aluminum; Copper; and Minerals. Its business includes diamond mining, sorting and marketing, and lithium exploration.
On June 20, RIO invested $498 million in its Kennecott operation in Utah to increase copper production from underground mining and improve key assets. This investment will be used for underground development and infrastructure for the North Rim Skarn area, which is expected to deliver around 250 thousand tonnes of additional mined copper over the next ten years.
Further, it allows RIO to strengthen its copper supply in the United States, which could increase its revenue and profitability.
The same month, the company announced the partnership with Gemco Rail to bring local iron ore rail car manufacturing and bearing maintenance to the Pilbara region.
Under this, RIO would invest approximately A$150 million ($100.05 million) to purchase 100 locally built ore rail cars over six years and continued investment in bearing refurbishment over ten years to support the company’s Pilbara operations. This is an industry-first initiative and could help RIO to reduce costs and support the local economy.
On April 28, RIO announced the acquisition of the Platina Scandium Project, a high-grade scandium resource in New South Wales, from Platina Resources Limited for an approximate consideration of $14 million. This strategic move would more than double RIO’s annual scandium production and align with its goal to grow in materials essential for the low-carbon transition.
RIO’s trailing-12-month net income margin of 22.36% is 213.9% higher than the industry average of 7.12%. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of 24.45%, 16.66%, and 12.84% are 128.9%, 172.2%, and 174.2% higher than the 10.68%, 6.12%, and 4.68% industry averages, respectively.
During the fiscal year 2022, RIO delivered solid financial results with underlying EBITDA of $26.27 billion, free cash flow of $9.01 billion, and attributable net earnings of $12.42 billion. Also, its underlying EPS came in at $8.196 for the same period. As a result, the company could pay out 60% of its underlying earnings as a full-year dividend of $8 billion, equivalent to $4.92 per share.
RIO has a four-year average dividend yield of 10.52% and an annual dividend yield of 7.03% at the current price level. Its dividend payouts have grown at an 8.8% CAGR over the past three years and 10.9% over the past five years.
RIO’s consensus EPS estimate of $8.42 for the fiscal year 2023 (ending December 31) indicates an increase of 2.7% year-over-year, while its revenue is expected to be $51.10 billion in the same period.
In addition, its revenue has grown at CAGRs of 8.8% and 6.8% over the past three and five years, respectively. Also, its net income and EPS have increased at CAGRs of 15.7% and 16% over the past three years, respectively.
Shares of RIO have gained 11.7% over the past year to close the last trading session at $64.01.
RIO’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade for Value and Quality. The stock is ranked #9 among the 31 stocks in the B-rated Industrial - Metals industry. To see the other ratings of RIO for Growth, Momentum, Stability, and Sentiment, click here.
Southern Copper Corporation (SCCO)
SCCO is an integrated producer of copper and valuable by-products and operates the mining, smelting, and refining facilities in Peru, Mexico, and Chile. It operates through Peruvian operations, Mexican open-pit copper operations, and Mexican underground mining operations segment.
On May 23, the company paid its shareholders a quarterly dividend of $1 per share of its common stock, reflecting its strong financials. The company’s annual dividend of $4 translates to a 5.65% yield on the current prices, while its four-year-average dividend yield is 4.81%. Also, its dividend payouts have grown at CAGRs of 32.4% and 26.8% over the past three and five years, respectively.
SCCO’s trailing-12-month levered FCF margin of 18.76% is 428.2% higher than the industry average of 3.55%. Likewise, its trailing-12-month ROCE and ROTA of 32.75% and 15.40% are 206.7% and 228.8% higher than the 10.68% and 4.68% industry averages, respectively.
In the first quarter ended March 31, 2023, SCCO’s net sales increased marginally year-over-year to $2.79 billion. Its operating income rose 3.6% from the year-ago value to $813.20 million, while its adjusted EBITDA amounted to $1.56 billion in the same period. Also, its income per share stood at $1.05, up 2.9% from the prior-year period.
The consensus revenue estimate of $2.55 billion for the fiscal second quarter (ended June 30, 2023) represents a 10.7% increase from the prior-year period. The consensus EPS estimate of $0.85 for the to-be-reported quarter indicates a 52.3% improvement year-over-year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past three years, its net income and EPS have increased at a CAGR of 26.7% each, while its EBITDA grew at a 15% CAGR.
The stock has gained 48.1% over the past year to close the last trading session at $70.88.
It’s no surprise that SCCO has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Stability. Out of 31 stocks in the same industry, it is ranked #7.
In addition to the POWR Ratings we’ve stated above, we also have SCCO’s ratings for Growth, Value, Momentum, and Sentiment. Get all SCCO ratings here.
Anglo American plc (NGLOY)
NGLOY is a United Kingdom-based mining company. It has a portfolio of mining operations and undeveloped resources focusing on diamonds, copper, Platinum Group Metals (PGMs), iron ore, nickel, and manganese.
On June 15, NGLOY collaborated with China’s largest copper producer, Jiangxi Copper Company, to ensure greater transparency in how copper is mined, processed, and brought to market. This partnership is part of the company’s efforts to create sustainable value chains beyond its mining operations, recognizing the increasing consumer demand for sustainably sourced raw materials.
On April 3, the company signed a memorandum of understanding with H2 Green Steel, a Swedish hydrogen and steel producer, to develop low-carbon steelmaking processes collaboratively.
Peter Whitcutt, CEO of NGLOY’s Marketing business, said: “Our work with H2 Green Steel will focus on exploring ways for premium, responsibly produced iron ore from our operations to be used as feedstock in the Boden plant’s low carbon production process, paving the way to a cleaner, greener way to produce steel, one of the backbone materials for the roll-out of energy transition infrastructure and for ongoing global socio-economic development. “
NGLOY’s revenue amounted to $35.12 billion in the fiscal year 2022 (ended December 31). Its underlying EBITDA came in at $14.49 billion, supported by portfolio quality, diversification, and growth. In the same period, the company’s attributable profit and free cash flow amounted to $4.51 billion and $1.58 billion, respectively. Also, its EPS stood at $3.72.
Street expects NGLOY’s revenue of $34.70 billion to register a marginal year-over-year growth in the fiscal year 2024. Its EPS is expected to reach $1.96 in the same period, reflecting an increase of 9.8% year-over-year.
NGLOY’s revenue and EPS have grown at a 5.5% CAGR and 10.1% CAGR over the past three years. Likewise, its EBIT has improved at a CAGR of 20.1% over the same period.
The stock’s trailing-12-month EBIT and gross profit margins of 31.03% and 62.14% are 169.5% and 118.9% higher than the 11.51% and 28.39% industry averages, respectively. Likewise, its ROTC of 14.07% compares to the industry average of 6.12%.
The stock has gained marginally over the past five days to close the last trading session at $14.40.
NGLOY’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system.
NGLOY has an A grade for Value. Within the Industrial - Metals industry, it is ranked #8 of 31 stocks. Click here to see additional ratings for NGLOY (Growth, Momentum, Stability, Sentiment, and Quality).
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RIO shares were trading at $62.78 per share on Thursday afternoon, down $1.23 (-1.92%). Year-to-date, RIO has declined -8.97%, versus a 15.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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