Rio Tinto: London Calling

02/17/2006 12:00 am EST


Lawrence Edelson

Editor, Real Wealth Report

Although the United Kingdom may not be known for its mining industry, London is home to Rio Tinto, one of the world's largest mining conglomerates. Here, Nicholas Vardy and Larry Edelson both look at the company and discuss the prospects for this commodity-related play.

"The market has been suffering from one of his negative mood swings recently especially with respect to commodities prices," says Nicholas Vardy, editor of The Global Bull Market Alert. That's great news for us, as we now have the opportunity to take another (cheap) bite at the commodity boom investment apple at some of the best prices you're likely to see in a long time. London-based Rio Tinto PLC (RTP NYSE)  provides the best value among the large, diversified commodity plays.

"Rio Tinto is a large conglomerate that engages in the exploration, mining, and processing of mineral resources, supplying aluminum, copper, diamonds, energy products, gold, industrial minerals, and iron ore. Trading at a p/e of less than 12, Rio Tinto was recently valued at $230 by investment bank Lehman Brothers. At a recent price of $189, RTP is a steal. Rio Tinto is also technically oversold. We may not catch it at the exact bottom, but we'll be close. We're looking for a good 20% short-term bounce in this stock. If you want to play the RTP bounce for even bigger profits, buy the July $200 calls."

Adds Larry Edelson, editor of Real Wealth, "Mining giant Rio Tinto is up more than 54% since I first recommended it last June. But the coming months should see this strong trend continue. In fact, metals analysts are raising their profit forecasts for the world’s biggest miners as demand boosts metals prices to record highs. Zinc and lead are selling at all-time highs, and aluminum reached a 17-year high in January. In other good news for RTP, iron ore prices are expected to climb 15% and zinc could rise 41% this year as demand shocks from China and other fast-growing economies gobble up tight supplies. Experts also predict aluminum demand will jump by more than 6% this year.

"Also beneficial to RTP are the ongoing negotiations between Australia and China on safety measures for the shipment of nuclear fuel to the world’s most populous and fastest-growing economy. Australia possesses 41% of global uranium reserves, and an export agreement between the two nations could help RTP make massive profits. China is Asia’s biggest energy consumer, and it plans to quadruple its nuclear energy capacity in the next 14 years. This is great news for Rio Tinto, and the shares should follow these trends higher."

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