Rio Tinto More Appealing Than BHP Billiton, Fortescue
It sure seems like a crazy summer already in North America. June 21 is the longest day of the year in the Northern Hemisphere. This morning we read about a crowd in Austin, Texas pulling a man out of his car and beating him to death, after the car accidentally bumped into a four- year-old girl. Mobs are dangerous things, and not just in parking lots or at public spectacles.
In our on-line poll of which stock is the best to own for the next five years, "Other" has been overtaken by Fortescue in late-night voting. We thought it was an interesting exercise in taking the mood of the public. It's not an exact science, though.
Does the poll really tell us anything? Not really. The question really comes down to valuations. Fortescue (ASX:FMG) is perceived, and is being valued as, a growth stock. BHP Billiton (ASX:BHP) is a diversified global mining powerhouse. But because mining profits are cyclical, the stock is valued more on cash flows that earnings. If it were valued on earnings, as most non-cyclical, non-resource stocks are, the share price could appreciate quite quickly. And speaking of earnings and the ability to increase them quickly, Rio Tinto (ASX:RIO) may be the most appealing of the three.
But in each case, your valuation of any resource stock is at least tied to the value of an underlying commodity with a constantly quoted market price. You can differ in your forecasts of prices. And the management of each company can differ in the quality of its execution (and the quality of its business plan). But all valuations come back, at the end of the trading day, to the price of iron ore, coal, gold, uranium, copper and other metals.
Dan Denning
The Daily Reckoning Australia
Which do you think is the next BHP - Fortescue, Rio or another company? Vote in our online poll, and leave a message below.
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). Dan draws on his network of global contacts from his base in Melbourne. He’s the managing editor of resource newsletter Diggers and Drillers and the editor of The Daily Reckoning Australia.