Overlooked opportunities in YWR’s QARV rankings
Why do China, shipping, iron ore, hardware, Brazil… all stand out if you screen high ROE’s with low valuation? Erik@YWR sees it as scepticism about global growth on which he is taking a contrarian view. Following this month’s review of YWR’s QARV rankings key themes include: 1) A massive China bull market has only just begun. 2) Opportunities in iron ore, where Fortescue, Rio Tinto and Kumba are delivering ~20% ROEs at <12x P/E despite China’s property crash. 3) The Taiwanese semiconductor supply chain stands out as highly profitable and undervalued. Everyone focuses on Nvidia and the datacentre buildout but misses the whole Taiwanese supply chain behind this. Tokyo Electron and ASML also screen well. 4) Brazil is overlooked, with names like Itau, Vale, Ambev and B3 all screening well. 5) Container shipping - supply-chain diversification could sustain tighter freight rates than investors expect.
Edition: 220
- 19 September, 2025
Does Rio Tinto need to raise equity?
Materials
At first glance the concept of RIO needing to raise equity for just one moderate (if overpriced) acquisition seems unlikely. However, GMR’s cash flow projections shows that RIO’s short term ability to repay debt is limited. Rising operating costs, flat to reduced revenue and especially rising capex to US$11bn this year is hitting FCF. GMR forecasts the base case FCF Yield of only 1.0% in 2025 (post Arcadium payment), slightly higher at spot. Assuming iron ore at US$107/t, RIO can easily debt fund Arcadium, with year-end 2025 net debt and leases of US$9.6bn, for Net Debt/Equity of 16% and Net Debt/EBITDA of 0.4x. Equity is not needed. Traditionally RIO has always respected its stock and never issued shares unless it had to. The latest speculation may possibly suggest RIO wants a clean balance sheet ahead of a larger deal to come.
Edition: 206
- 07 March, 2025
Tracking the mutual funds tax selling
Quantitative Partners with Phil Erlanger Research
Geoff Garbacz thinks this might be the most important data point to follow to determine if we continue to see a stock market rally. Stocks vulnerable to tax selling include Boeing, Intel, Rio Tinto, Stellantis and UPS. Click here to watch the video which also includes the key levels to monitor on the S&P 500.
Edition: 193
- 23 August, 2024
FTSE 100 stocks & sector review
Messels currently has 19 long positions in their FTSE 100 Momentum portfolio having closed their position in Rio Tinto after it pulled back in the five-year range and broke medium term relative support. They remain overweight Retail and in particular, Howden, Tesco and Marks & Spencer which maintain uptrends and JD Sports and Kingfisher which renew base formations. Other stocks highlighted in their technical review this week include Informa, which has rallied back to the highs and rallies from relative uptrend support; while M&G finds 18-month uptrend support and develops a base at the bottom of the relative range.
Edition: 191
- 26 July, 2024
BHP (BHP AU) Australia
Materials
On several metrics Rio Tinto now looks more attractive than BHP, but the difference is not that marked and partly explained by BHP’s large market cap. P/E, P/CF, EV/EBITDA, FCF yields and dividend yields are somewhat similar. For the coming year which one outperforms may be as simple as aluminium vs. met coal price moves, with copper favouring BHP. However, information flow in 2024 possibly favours RIO with good news from Oyu Tolgoi. With a positive outlook for copper and met coal, GMR prefers BHP for 2024 (upgrades to Buy; TP A$52). This is a non-consensus call with most preferring RIO. For best value and yield they prefer Vale.
Edition: 175
- 08 December, 2023
FTSE 100 Momentum Portfolio
Messels position themselves as a dedicated technical research team who work for fund managers at a fraction of the cost of a typical sell-side analyst. Highlights from their weekly report: 1) Informa - new Buy as it rallies from support at the bottom of the 12m range and gains relative momentum. 2) Rio Tinto - develops bases at medium term support. 3) Croda - finding 7-year price and relative uptrend support. 4) Imperial Brands - renews uptrends from support above 2-year price and relative bases. 5) GSK - reaching support at the bottom of the 10-year range.
Edition: 146
- 14 October, 2022
Screening UK & Europe: Combining quality, momentum and expectations indicators
Methodology - the initial universes are stocks with $2bn+ M/Cap in the UK and $5.5bn+ across Europe. After that Willis Welby starts with a quality cut off based on their measure of Intrinsic Return on Capital Employed. They then narrow down using a combination of share price momentum and EBIT revisions before incorporating their expectations analysis via their measure of the implied to Y3 EBITM ratio. This month sees 6 stocks enter the UK screen (including Rio Tinto, Flutter, Renishaw) and 17 names added to the European version (including Nestle, Hapag-Lloyd, Roche, Vestas, Aker).
Edition: 140
- 22 July, 2022
Diversified miners becoming less diversified
The three leading diversifieds have worked hard in un-diversifying themselves in recent years, becoming more and more iron ore focused, with fewer points of differentiation. David Radclyffe finds that nearly all investment ratios favour Vale (FCF yield 15%, EV/EBITDA 2.6x), then Rio Tinto and finally BHP Billiton. For as long as iron ore can hold around US$100/t, expect average cash return yields of 8-12% in 2022E. BUY Vale with a target price of $15.40.
Edition: 140
- 22 July, 2022
Investment opportunities in iron ore despite uncertainty
Despite uncertain Chinese growth rates and hence iron ore demand, along with rising inflation and the Russo-Ukrainian war, David Radclyffe believes there may be more time to stay invested in the iron ore sector. With FCF yields remaining high for pure plays and diversifieds (~14%), investors should look for strong dividend yields (~9%) and cash returns this year. The big global diversifieds continue to offer better value than the pure plays, with Vale the preferred single entry, followed by Rio Tinto. For pure plays, David’s preferred exposure is Fortescue Metals Group, a non-consensus call.
Edition: 133
- 14 April, 2022
Miners forced to become green power companies?
David Radclyffe reviews how mines with little access to green electricity will need to build capacity themselves or via a third party in order to meet emissions targets. Some will come under increasing scrutiny; Rio Tinto, South32, Southern Copper Corp, Freeport-McMoRan and Anglo American could all face increased capital/opex exposure. The potential capital costs associated with self-generation are massive, so investors should keep a close eye for opportunities present in the partial or full outsourcing of infrastructure.
Edition: 122
- 29 October, 2021
Materials
Pass-the-parcel - you can only give so much away before there’s little left to unwrap. Divesting the Petroleum business leaves BHP with little to differentiate it from Rio Tinto and Vale. BHP should have used its petroleum expertise and customer base to build a hydrogen / ammonia business taking a leaf from Fortescue’s playbook. From a ROCE and CO2-e perspective the met coal business would have a greater overall impact on the business if it were divested. However, the problem appears to be a lack of interested buyers.
Edition: 117
- 20 August, 2021
Turquoise Hill Resources (TRQ)
Materials
Major move forward for the company following news that it has agreed an updated funding plan with Rio Tinto for the Oyu Tolgoi copper-gold mine in Mongolia. GMR now estimate that TRQ’s NPV has increased to C$40.50/share. Funding is adequate out to the end of 2023 when mine EBITDA increases. While some risks remain they are more than priced in with the shares trading at half NPV. Upgrades the stock to Buy. TP C$30.00.
Edition: 108
- 16 April, 2021