Is Glencore PLC A Better Buy Than Rio Tinto plc Or BHP Billiton plc?

Who wins the battle of the mining giants: Glencore PLC (LON: GLEN), Rio Tinto plc (LON: RIO) or BHP Billiton plc (LON: BLT)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

opencast.miningIt’s been a mixed 2014 thus far for investors in mining giants Glencore (LSE: GLEN), Rio Tinto (LSE: RIO) (NYSE: RIO.US) and BHP Billiton (LSE: BLT) (NYSE: BBL.US). That’s because, while Glencore and BHP Billiton are up 10% and 6% respectively (versus a flat performance from the FTSE 100), Rio Tinto is down 3% year-to-date.

However, will this level of performance be mirrored through the remainder of 2014 and beyond? Can Glencore continue to outperform its two rivals?

Mixed Prospects

Mixed performance is also expected with regard to next year’s earnings figures, with Glencore potentially offering investors a higher growth in profit than Rio Tinto or BHP Billiton. Indeed, Glencore is forecast to increase earnings per share (EPS) by 14% this year, followed by an increase of 38% in 2015. This compares very favourably to Rio Tinto, which is set to increase EPS by 12% next year, while BHP Billiton disappoints on this front, with a fall in EPS of 3% expected next year.

Different Valuations

However, Glencore’s strong growth prospects appear to be at least partly priced in by the market. For example, it currently trades on a price to earnings (P/E) ratio of 15.8, which is considerably higher than the P/Es of 10.8 and 12.5 for Rio Tinto and BHP Billiton respectively. Therefore, it is clear that value investors may prefer to stick with the cheaper, albeit slower growing, BHP Billiton and Rio Tinto, rather than seek out higher growth at a higher price.

Looking Ahead

Indeed, all three companies have their strengths and weaknesses. For example, Rio Tinto appears to offer the best mix of great value and strong growth prospects, but it relied on one commodity (iron ore) for over 90% of its 2013 earnings, thereby showing how little diversification it offers investors. On the flip side, BHP Billiton is very well diversified, but is set to post lower earnings next year. Meanwhile, Glencore, while it offers the highest potential growth rate, is already nearly 50% more expensive than Rio Tinto based on their respective P/E ratios.

So, with the mining sector’s outlook remaining uncertain and the macroeconomic outlook for China only beginning to improve, investors may be well advised to spread the risk among all three companies. That way, investors can tap into diversification, strong growth rates and great valuations.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter owns shares in BHP Billiton.

More on Investing Articles

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »

Investing Articles

2 passive income shares to consider for December 2024 onwards?

These are popular UK shares investors often buy for passive income from dividends, but are they actually good investments now?

Read more »

Young black woman using a mobile phone in a transport facility
Investing For Beginners

Down 34% in a month, is this FTSE 100 stock going to be demoted?

Jon Smith flags a FTSE 100 company with a recent poor performance he believes could see it soon drop out…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Is the Diageo share price set to make a stellar comeback in 2025?

Harvey Jones thought the Diageo share price looked good value when he bought it after last year's profit warning, but…

Read more »

Investing For Beginners

It’s down 50%. Would it be madness for me to buy this value stock?

Jon Smith notes down a household value stock in the FTSE 250 that he thinks can rally in the long…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Up 70% and 80%! I’m thrilled I bought these two red-hot UK stocks exactly 1 year ago

Harvey Jones bought two UK stocks at the end of November last year, and both have smashed the market in…

Read more »

Investing For Beginners

Consider filling an empty Stocks and Shares ISA like this to hit five figures of second income

Jon Smith outlines how he could use stocks with both income and growth prospects to grow a Stocks and Shares…

Read more »

Investing Articles

These FTSE 100 shares could soar over the next year

FTSE 100 shares show strong potential as rate cuts loom. History shows stocks could gain more than 70% in the…

Read more »