Summary
* Mining stocks are among the few stocks posting stellar profits while inflation surges.
* BHP Group and Rio Tinto are two mining stocks that should be in your portfolio because their yields will keep increasing.
Inflation has become persistently high, and few sectors can give returns that beat inflation. But recently, investors are rushing into mining stocks because the industry is delivering yields above inflation. Stocks like BHP Group (NYSE: BHP), Rio Tinto (NYSE: Rio),and Vale SA (NYSE: VALE) have seen increased activity during this period. Rising commodity prices have boosted their attraction, and they have been posting significant cash returns recently.
As of March 2022, mining stocks have posted dividends and cash returns of about $24 billion, with more returns expected. These have become very attractive for investors because the markets have few positive real yields that can beat inflation. Also, mining companies have shown themselves to be resilient in this climate.
Two mining stocks that have been recording stellar profits are BHP Group and Rio Tinto. This article will analyze both stocks and show why they are a buy right now.
BHP Group (NYSE: BHP)
The BHP Group has its headquarters in Melbourne, Australia. It is the second-largest mining company globally, and its mining products include copper, silver, uranium, molybdenum, zinc, gold, iron ore, and energy coal. Initially, BHP was involved with exploring and developing oil and gas properties, but it merged with Billiton Ltd in 2001 and expanded into mining.
The stock has been seeing increased growth recently due to the rising demand for copper, nickel, and cobalt, which are metals used to transition to renewable energy. These metals are essential in electric vehicles (EVs) and other renewable energy infrastructures. Therefore, the demand has increased with a concomitant increase in the price. Global demand for copper will double over the next 30 years, and that for nickel will quadruple.
Metals are being touted as "the new oil" due to the transition from fossil fuels. And it looks like that. In the first half of 2021, BHP's profit was $11.3 billion, a rise of 43%, and this growth was driven by a 64% margin on its sales of iron ore from the Pilbara mine. Total revenue for 2021 was $60.8 billion, a 41.2% growth year over year. Again, iron and copper sales were at the forefront, accounting for 83% of the total sales.
The profit margins for the company are pretty impressive. Its gross profit margin was 88.20% and represents 189.2% higher than the industry average, while its net income margins were 18.46%, which means 116.9% higher than industry averages.
BHP is a solid buy right now. We recommend you add it to your portfolio of mining stocks.
Rio Tinto Group (NYSE: Rio)
The Rio Tinto Group is an Anglo-Australian metals and mining corporation with dual headquarters in Australia and England. It is among the most significant mining corporations globally, and it produces diamonds, iron ore, copper, uranium, gold, aluminium, and lead. Rio Tinto Group also has substantial interests in the refining sector, although its primary focus is on extracting minerals. It is the third-largest mining company globally by revenue, behind Glencore and BHP.
Business has been good in the mining sector, and the company's recent earnings report shows this. For 2021, it reported $21.38 billion in underlying profits, which was a significant growth from the $12.45 billion reported in 2020 and below the consensus estimate of $21.63 billion. There was also a dividend payment of $10.40 per share, representing a more than 45% increase from the $5.57 per share in 2020. Again, it beat the consensus estimate of $10.21 per share. The dividend yield was 13.5% for 2021.
Based on the results, I am optimistic about Rio Tinto. It has shown itself to be a resilient and profitable company. With the increased demand for minerals, that outlook is unlikely to change. One other point is that it is significantly undervalued at a price-to-earnings ratio of 6.7. So, Rio Tinto is a good buy at a low price.
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