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Zack’s Bear of the Day: Rio Tinto (RIO)

While the oil crash has taken center stage in the commodity world in recent months, many other natural resources have crumbled too. This has been the case in much of the base metal world led by copper and its nearly 25% decline over the past six months.

As you might guess, this awful trend has impacting companies in the broad mining world as well. This is especially true as one of the biggest consumers of industrial metals and similar products, China, faces an economic slowdown. This has really put miners in a pinch and a great example of this negative trend is definitely Rio Tinto (NYSE:RIO) and its recent trading and current outlook.

RIO in Focus

Rio Tinto is a global industrial metal & mineral mining giant based in London. Though the company may be UK-based, it has global operations that stretch across all six inhabited continents, while it has a large number of projects in the greater Australia region.

While this was a great business to be in years ago, market sentiment has changed and has gone decidedly against the commodity world. Thanks to this, RIO has seen its shares plunge by over 20% in the past year, including a 13% slump in the past three months alone.

And while this company, and really the rest of the space too, have been beaten down lately, investors shouldn’t get the idea that this is the time to jump back in. if anything, more pain could be ahead for this space and especially if you look to recent earnings estimates.

RIO Estimates

In the past month, analysts have been revising their estimates sharply lower for RIO’s EPS projections. Analysts now believe that the company will see an EPS contraction of 11.6% this year and 18.5% the following year.

And much of these bearish projections are a result of recent earnings estimate revisions to the downside for RIO earnings. Three months ago, the full year EPS estimate stood at $5.23/share while today it is down to $4.89/share. We have seen a similar trend in the next year projections, as these have tumbled from $4.97/share to $3.98/share over the same time frame.

Clearly, analysts do not believe that RIO will be able to pull itself out of the slump any time soon. Instead, things could get worse before they get better in this corner of the market. That is why we currently have RIO as a Zacks Rank #5 (Strong Sell) and are looking for this company to face more choppy trading in the months ahead.  

Other Picks

As we noted earlier, this industry isn’t exactly looking favorable right now. The Mining-Miscellaneous space actually has a Zacks Industry Rank in the bottom 20% overall so there are far better choices out there.

With that being said, if you are desperate for a mining pick consider looking over to the gold or non ferrous metal spaces instead as both have more favorable ranks right now. A name here that might be worth a closer look is Rubicon Minerals (RBY) in the gold world or Aloca (AA) in the non ferrous metal space.

Both of these stocks have a Zacks Rank #2 (Buy) and were recently upgraded to ‘buy’ territory as well. So, either could be a better choice than RIO right now, though the entire space definitely looks shaky in the near term thanks to the broad commodity slide and dollar strength.

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