Crushed: Rio Tinto Limited (ASX: RIO) shares have slumped an enormous 5.5% today…
…but the writing has been on the wall for many years.
Indeed, following an unprecedented China-fuelled mining boom, the tables have – and are – turning on Australian resources companies such as Rio.
To give you an idea of what I'm talking about, take a look at the following screenshot from Bill Gates' website, Gatesnotes.com.
As can be seen, China used almost 150% more cement in the three years between 2011 and 2013 than the entire US economy did in the twentieth century.
For companies similar to Rio, which produce iron ore for roads and buildings, and coal for energy; surging demand for raw materials was a boon.
Unfortunately, despite the blue sky conditions a string of terrible acquisitions and mishaps ultimately resulted in Rio shares significantly underperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
In fact, despite the supposed 'boom' in the resources sector, Rio shares have achieved a total shareholder return (dividends plus capital gains) of just 3.1% per year over the past decade.
And with commodity prices slumping in 2015, I strongly doubt the next five years will be any better — probably worse!
As an aside, I also think they should cut their dividend payout to pay down debt and build a cash balance.
1 stock I'd buy before Rio Tinto
Fortunately, there are many other quality ASX blue chip stocks savvy investors can buy today.
Take Flight Centre Travel Group Ltd (ASX: FLT) as an example.
According to Morningstar data, Flight Centre has achieved a compound annual total shareholder return of 13.8% over the past 10 years. That turns $10,000 into $36,427 today!
Over the next two years, analysts are concerned Flight Centre's profit may come under pressure as the economy slows. I'm certainly not debating it'll be all smooth sailing.
However, over the long-term, I am very bullish on Flight Centre.
Why?
- Shares are cheap
- They pay an excellent dividend
- The company has bucket loads of cash
- It's very well run
- And it's growing internationally
On top of all that, as opposed to Rio, Flight Centre sets its own prices and doesn't have a limited mine life on its assets, so it can be held comfortably forever.
Buy, Hold or Sell?
I'm on record as saying Rio shares are a risky bet, even at today's seemingly low prices. Conversely, Flight Centre shares appear excellent value over the long-term.
