2019 has proved to be a rocky ride for shareholders over at Antofagasta (LSE: ANTO), but when all is said and done, it has proved to be a pretty terrific year.
Despite growing fears over the state of the global economy, and the impact of ongoing trade wars which threaten to spill over into 2020, the copper giant has managed to gain an impressive 21% in value since New Year’s Day.
I don’t want to ruin the party, but I can’t help but think that buying has been far too frothy. The supply and demand outlook moving into the new decade looks less than robust. And the commodities giant, unlike many other raw materials producers on the FTSE 100, this one also has to contend with a sky-high valuation. It’s one that leaves it in extra danger of toppling should newsflow indeed deteriorate in the new year.
At current prices Antofagasta trades on a forward P/E ratio of 22.5 times, miles above the broader corresponding average below 15 times, and a reading which fails to reflect a copper market whose fundamental picture is becoming a little more worrisome.
Latest data shows Chinese refined metal output soared to 909,000 tonnes in November, taking out the previous record of 868,000 set a month earlier.
Production problems elsewhere threaten to mitigate the impact of rising copper output from the Asian state on the copper market in 2020. Still this, in combination with signs that global growth is braking sharply, suggests metal prices could be in for a hard time in the new year.
What about this 5% dividend yield?
Royal Bank of Scotland Group (LSE: RBS) is another frightful Footsie firm I think should be avoided in 2020. The bank’s share price has soared in recent months, firstly as the UK sidestepped a no-deal Brexit in October and then the Conservatives sealed a Commons majority at the ballot box. Its share price is now up 15% in the year to date. But this fresh strength leaves it in danger of a sharp reversal soon into the new year, I believe.
Recent GDP data has shown the domestic economy performing at its weakest for around a decade. Office for National Statistics numbers showed the UK delivered zero growth in the three months to October, the worst result for 2009, and hardly a great endorsement for what to expect in 2020.
Indeed, the same Brexit uncertainty that has hammered economic growth looks set to spread into the new year, with fresh political manoeuvring this week putting a disorderly withdrawal back on the table for next December.
Not even a low forward P/E ratio of 10.1 times and a corresponding dividend yield of 5.1% are enough to tempt me to invest. There’s a sea of great FTSE 100 dividend stocks to choose from today, so why take a risk with RBS?
