On Jan 6, 2016, Zacks Investment Research downgraded Rio Tinto plc RIO to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #5 have high chances of underperforming the broader market in the quarters ahead.
Why a ‘Strong Sell’?
Weakening iron ore prices have been adversely affecting Rio Tinto’s aggregate revenues and margins in recent times. Apart from iron ore, market prices of various other products offered by the company such as copper and nickel are also declining over time. Unfavorable prices of these raw materials are weighing on the firm’s top- and bottom-line results. On the other hand, as Rio Tinto aims to augment the productivity of iron ore, subsequent news of higher output is triggering negative sentiments in the iron ore commodity market. This is because rising output will only add to the global supply of the material, weighing further on its equilibrium prices. This would ultimately drag the price of iron ore further downward, dampening the company’s top- and bottom-line results in the upcoming quarters.
Moreover, Rio Tinto’s commercials are highly sensitive to changes in global economic activities. Also, natural disasters like tropical cyclones, severe monsoon and floods hurt the company’s profitability. Higher energy costs and fluctuations in raw material prices might adversely impact the company’s margins and earnings in upcoming quarters. At the same time, stiff rivalry in the global mining industry continues to pose threats of market share loss for Rio Tinto.
Stocks to Consider
Better-ranked stocks in the industry include Avalon Rare Metals Inc. AVLNF, Denison Mines Corp. DNN and Rare Element Resources Ltd. REE. All three stocks hold a Zacks Rank #2 (Buy).
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Click to get this free report RIO TINTO-ADR (RIO): Free Stock Analysis Report DENISON MINES (DNN): Free Stock Analysis Report RARE ELEMENT RS (REE): Free Stock Analysis Report AVALON RARE MTL (AVLNF): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research