The Rio Tinto (LSE: RIO) share price is one of the FTSE 100‘s more volatile ones. It’s in a very cyclical sector, as demand and prices rise and fall.
Chinese economy soaring? Yay, you can sell all the iron ore you can produce. China faltering? Oh dear, iron prices slump.
What does Rio Tinto’s latest production update say about all that?
Fresh demand?
China might just be the saviour again, as things could be stabilising.
The dire construction business in that country doesn’t help though. It consumes a lot of iron and steel. And when it hit the skids, prices can fall.
Iron ore prices are down since their 2021 peaks, but they picked up in the latter half of 2023. And the stuff can be a good mirror of general trends.
Q4 production
Rio’s Q4 iron output slipped a couple of percent on the same period last year, but it was up a bit on 2022.
Bauxite and aluminium output grew 15% and 8%, respectively, with copper up 5%. Overall, it was a decent quarter.
But investing in Rio Tinto has to be about the long term.
And on that score, I think CEO Jakob Stausholm has it nailed. He said: “There is good demand for the materials we produce, and our purpose and long-term strategy make more sense than ever.“
Stable strategy
Rio isn’t such a complex business really. People just want all the rich paydirt it can produce.
So keep digging it up, and keep selling it, at whatever prices and demand there are in the market. What other ways are there to do it?
Ace investor Warren Buffett has long argued that we should buy shares in companies that we can understand.
And what can be more straightforward a firm to understand than one like Rio Tinto?
Valuation
On the value front, there’s a price-to-earnings (P/E) ratio of a bit under 10. And we have a 6% dividend yield on the cards.
With that, and with an almost guaranteed long-term demand for everything Rio can unearth, I’d say that’s a buy.
But the cyclic thing can have an impact. In fact, I think it can even make it hard for long-term investors to hang on. I’ve owned Rio shares in the past, so why did I sell?
It was a bullish part of the cycle. And I thought the shares were fair value, but no great bargain. And there was some other stock I thought was much better value.
Long-term buy
I do rate Rio Tinto shares as a long-term buy, for those who can handle the short-term ups and downs. And even if China’s economy looks to be not as bad as feared, I think this year could still hold a fair bit of risk.
If I had the cash to buy every good long-term stock out there, I’d have some Rio Tinto for sure.
But not being in that position, there always seems to be something I like better. Right now it’s banks.
