Recent Events Make Rio Tinto A Strong Buy

Jan.17.12 | About: Rio Tinto (RIO)

China's recent GDP report showed better than expected growth of 8.9% during the fourth quarter. This will be good news for the resource stocks that feed China's ever growing demand. One stock I like based on valuation, growth prospects and improving technicals is Rio Tinto (NYSE:RIO)

Momentum drivers for RIO:

1. The company just reported record Iron ore production in the fourth quarter driven by expansion at its Australian properties.

2. The stock just crossed both its 50 and 100 day moving average (See Chart).

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(Click to enlarge)

3. A huge infrastructure build in Western Australia will double global coal trade as well as up global iron ore exports by 50% over the next decade.

4 reasons Rio Tinto is a solid long term value at under $54 a share:

  • The stock is significantly under analysts' price targets. The median analysts' price target on RIO is $88 and S&P has a "Strong Buy" rating and a $81 price target on the stock.
  • The company has an A rated balance sheet, yields 2.1% and is selling at just over 5 times operating cash flow.
  • Rio Tinto nears the bottom third of its valuation range based on P/E, P/B, P/CF and P/S.
  • The stock is cheap at just 6 times forward earnings and with a five year projected PEG of under 1 (.73).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RIO over the next 72 hours.