Can things get any worse for iron ore miners? That's the question that a lot of Aussie investors are understandably asking themselves at the present time, with the price of the steel-making ingredient falling to its lowest level in around ten years and showing little sign of any improvement in the short run. In fact, the woes for the mining sector keep on increasing and just as you think that a bottom may have been hit, the outlook deteriorates further.
Now, though, could be a great time to buy stocks in the mining sector, since as John Rockefeller famously said 'the time to buy is when blood is running in the streets'. As such, are the valuations of these three iron ore-focused miners now low enough to warrant investment for the long term? Or, should you wait a little longer for an even lower price?
Rio Tinto Limited
Shares in Rio Tinto Limited (ASX: RIO) trade on a price to earnings (P/E) ratio of just 9.9, which is considerably lower than both the ASX's P/E ratio of 16.6 and also the mining sector's P/E ratio of 12.7. Furthermore, it has a price to book (P/B) ratio of just 1.85, which could encourage the likes of Glencore to consider making a bid for what remains a high quality company.
Furthermore, Rio Tinto has sound finances, which are evidenced by the fact that its cash flow per share has risen at an annualised rate of 10.1% during the last five years. And, with its bottom line due to rise by 19% next year, it seems to offer a wide margin of safety and appears to be worth buying for the long term.
BHP Billiton Limited
Evidence of BHP Billiton Limited's (ASX: BHP) appeal can be seen in its dividend yield, which currently stands at a whopping 4.7%. Certainly, BHP's headroom when making dividend payments is perhaps tighter than its investors would wish it to be, with it currently standing at 1.2 times. However, such a generous yield, alongside a P/E ratio of 14.5, offers a wide margin of safety.
Furthermore, shareholder value could be created with the spinoff of assets into a new entity called South32. This could improve investor sentiment, while also allowing the two companies to improve productivity. And, with BHP having an excellent track record of improving cash flow (it has risen at an annualised rate of 11.5% during the last ten years), it seems to be a top notch investment.
Fortescue Metals Group Limited
The outlook for Fortescue Metals Group Limited (ASX: FMG) is extremely challenging, with the company's bottom line expected to fall by over 70% per annum during the next two years. This is, of course, being affected by impairments that are likely to continue as the price of iron ore continues to fall and Fortescue's share price is now 65% below where it was a year ago.
However, for less risk averse investors, Fortescue offers good value and could be a great turnaround story. For example, it has a P/B ratio of just 0.73 and, with China rumoured to be putting together a stimulus package, Fortescue could prove to be a rewarding, albeit risky, investment for the long run.
