Why the Rio Tinto Limited (ASX:RIO) share price fell 11% in August

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Shares falling

The Rio Tinto Limited (ASX: RIO) share price fell 11% in August, despite reporting a 33% jump in first-half net profit to $US4.38 billion (A$5.9 billion).

Underlying earnings – which excludes impairments and exchange losses – rose 12% to $US4.416 billion from $US3.9 billion a year earlier as higher iron ore output overcame lower, albeit still strong, prices in the current period.

That was below forecasts of $US4.53 billion, according to estimates in an independent survey of 15 analysts.

Rio declared an interim dividend for Australian shareholders of $1.7084 a share, up 24% from $1.3772 a year earlier.

Despite the recent falls, the Rio share price has gained 9.51% since the beginning of 2018, rising from $76.50 to a high of $87.09 in early June.

RIO

Rio increased its forecast capital expenditure for 2020 to $US6.5 billion, up from $US6 billion.

RBC analyst Tyler Broda reiterated an “underperform” rating on Rio following the results announcement.

While saying Rio is in a strong position, RBC said it expects the group’s “premium valuation and concentrated exposure in iron ore” to crimp future profitability.

Since the end of August, Rio Tinto shares have clawed back slightly to gain 0.36%, with the 12th largest company quoted on the ASX now trading at $73.01.

Rio Tinto stocks trade on a price to earnings (P/E) ratio of around 9 times earnings. Rio shares trade on a fully franked dividend yield of 5.47%.

Rio Tinto shares don’t look cheap, but these 3 shares do…

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

Rio Tinto was not one of them, but the list does include one tiny gold mining stock, and the company one top fund manager calls the cheapest stock in the ASX 100.

Find out why these 3 Cheap and Good Stocks could be better buys than Rio Tinto. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Lauren Surplice is a keen follower of the stock market, investing in individual companies and funds. She follows the daily stock market news, covering the ASX stocks that are moving the markets. You can contact Lauren at laurens@thecapitalclub.com.au