2016 was a great year for RIO holders and 2017 should even be better. Having picked up a bundle at $44 and averaging down, it now means I have a great position for 2017.
The best reason to be bullish on RIO is the iron ore price and given the ambitious infrastructure building plans in the Asia, spearheaded by China’s New Silk Road plans, expect demand for iron ore to significantly rise.
Top Picks 2017: Rio Tinto
Of the major commodity producers, our favorite remains Rio Tinto (RIO); the stock was also as our Top Pick last year, gaining 32%. With a dividend-reinvestment plan, the 2016 total return would have spiked to 39 percent.
We recommend it again in 2017. As a testimony to management, we emphasize the 12-month yield of 3.9%, backed by a trailing 12-month free cash flow yield that hovers above 6%. RIO has a no-dividend-cut policy.
Besides iron ore, we like RIO for its second largest product, aluminum. The company’s aluminum assets lie in the geopolitically stable US and Canada, where there’s little risk other than price.
Should copper become too expensive, as an alternative to the red metal, aluminum would see a jump in demand. And its forward P/E is only 15.5
Even after its 2016 performance, RIO would need to more than double before meeting its 2011 high—and nearly quadruple before it hitting its 2008 high.
But let’s be conservative. Given that RIO today remains trim and fit, we think a reasonable 12- to 24-month target would be another 50% gain.
RIO Price at posting:
$62.09 Sentiment: Buy Disclosure: Held
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