Buy This, Not That: Mining for Income and Profits

Shah Gilani|February 21, 2024

The big dog reports earnings tonight after the bell.

Of course, I’m talking about Nvidia.

Will the $1.7 billion tech juggernaut – worth more than both Amazon and Alphabet – surprise and delight… or shock and disappoint?

While most folks breathlessly await the report…

I’ve got my eye on a different sector.

It’s one that has seen prices come back down to earth… but there are big dividends to be had.

I’m talking about the commodities sector… and more specifically, miners.

In my latest Buy This, Not That video… I look at five of the biggest miners in the world.

How safe are their dividends?

Which ones are BUYs and which are NOT?

You can find out in today’s video.

Click on the image below to check it out.

 

Transcript

Hey, everybody. Shah Gilani here with your weekly BTNT, as in Buy This, Not That. And I’m dressed up because I just came back from doing Fox Business News’s Varney and Company show. The big deal today, because it’s Wednesday, is after the close with Nvidia’s earnings report. So hopefully you’re all keeping an eye on that… but I’m not doing semiconductor stocks today.

But I will say if Nvidia dips, buy the dip.

Today, because a bunch of you had asked about commodity stocks, the big commodities stocks, the big miners specifically, and because Rio Tinto just reported, I’m going to do the miners today.

So first up, Rio Tinto. Now, earnings were okay, but I saw the CEO this morning and was unimpressed with what he had to say. The market’s unimpressed. The stock’s down right now… a little bit more than a quarter of a percent… so not a lot going on there.

The real question with a lot of these big miners is… how safe are the dividends? Are they variable? Are they going to change them? Are they going to get cut? Because a lot of them are all over the place.

As far as Rio Tinto goes, the CEO is talking about the dividend being safe and a 30% payout… but that’s not the way I see it. So Rio Tinto, symbol RIO. Now, this is a big, big miner, global miner. I’m going to say NOT. I think you can buy it cheaper. Right now the stock’s trading at $65.75. Right now it’s trading through its 200-day moving average of $65.75. It’s just a shade below that.

So guess what? It’s broken through its 200-day. I wouldn’t buy it right here. It’s not worth it for the dividend. The dividend, again, is variable. Looks really good at 6%-plus. Would I buy the stock for that dividend yield? Absolutely, but I think you can get it lower. So it’s not a buy here.

If the market’s going to give up a little bit of the ghost, so to speak, and if we start to see that after the close, that if Nvidia disappoints or if it’s a “sell the news” moment on Nvidia and the market starts to sell off… but I’m not so sure that’s going to happen.

Nvidia, I think, is going to hit it out of the park and we could get another leg higher, higher highs on the S&P, higher highs. New record highs could be forthcoming, but we always have to look at what ifs.

And what if there are maybe less than exciting earnings or maybe there’s some qualification on Nvidia’s earnings as far as supply, the ability to meet the demand? Well, who knows, but the numbers should be good. If they’re not, the market could come down. And if it comes down, the miners are going to come down, too.

With Rio Tinto, I think you could be patient with Rio, and I think it’s possible to get Rio with $59, which is where I’d certainly want to buy it. So if you want to buy it now for the dividend and then maybe average down, that’s okay. But as a trade right now based on the earnings and way the stocks were acting, I wouldn’t buy it right now.

Next up, speaking of big boys, is Vale. Now, Vale, symbol VALE, is huge. All of these miners that I’m pulling up are huge. So Vale, again, we’re talking about $57 billion market cap. Rio Tinto is giant at $106 billion market cap. Vale is trading at $13.47. It’s up a little bit on the day. Vale is scraping kind of its lows. It’s not on its lows, but really around $12, I’m going to call it $12.25, thereabouts. So I like Vale down here. I would buy Vale down here at $13.48, thereabouts, $13 and change, because they don’t have far to go to test the bottom, which case I would probably see if you broke that kind of bottom and add more.

Why? Because you’re getting a 9%-plus dividend yield on Vale. So yes, Vale, VALE, it’s a BUY down here. And I would add to it for that dividend yield. If they’ve already cut the dividend yield and its variable is going to change, but I like it. The payout ratio is like 40%. So Vale, VALE, it’s a BUY down here.

Next up, speaking of big boys, I know a lot of people want to know about BHP Billiton. BHP, again, we’re talking huge. BHP, $150 billion market cap. Trading at, we’ll call it, just shade under $58.

It’s had a really sloppy ride. Dividend is right now we’re looking at about 5.85% dividend yield, but the payout ratio is 116%. So I think they’re going to have to cut that dividend. So I wouldn’t want to own BHP right here, even though it’s come down a lot. This is how wacky BHP is. BHP was trading up as high as almost, we’ll call it, $69 and change. It’s now $57 and that was just at the end of December. And then in the new year it’s just taking a hit, trading below its 200 day.

So I like BHP for its dividend, but I’m not so sure they can sustain that dividend. And that’s a problem for me with some of these miners. So I’m going to say BHP, NOT. Let’s just see where it goes. And like Rio, I think it’s maybe a buy lower. I’ll let you know because I’d rather put my money in stuff that I think is going to work sooner rather than later. But that being said, BHP right now, NOT.

Glencore. Wow. Now, Glencore is a huge global miner, but Glencore also has a huge trading desk. Glencore is, to me, more of a commodities trading house. At least that’s what it was traditionally when it was started in the ’70s and that’s an interesting story. If you don’t know the history of Glencore, check it out. Look it up and go back to the history of Mark Rich and what happened and how Mark Rich built Glencore. So pretty interesting stuff.

Now, Glencore, symbol GLNCY. It’s cheap right now on a dollar basis, which sometimes it attracts investors because that’s only trading at $13 and change or $10 and change or it’s less than $10. In Glencore’s case, GLNCY is trading at $9.73, but it’s just falling off of a cliff. Now, this is a stock you want to say like, “Oh, my gosh, do you want to buy it down here?”

God, revenue growth is down 20% year over year over the trailing 12 months. Quarterly revenue growth year over year, trailing 12, 20 months, down 62%. So you’re trying to catch a falling knife here as far as buying Glencore, so I sometimes like to do that. If you want to buy Glencore, I’d say give it a shot because it’s looking pretty cheap. And both dollar terms and in terms of whether stock has come from. Again, I think it’s a bit of a falling knife. It’s a little dangerous.

Let’s take a look at what the dividend yield is on Glencore. Glencore, we’re now looking at … Let’s just see the latest on that. And it’s variable, so I’m not so sure Glencore can sustain its dividend yield, which let me just pull this up for you on this screen here because the other one is stuck. GLNCY is Glencore and everything’s a little slow on my … I guess I’m running too much stuff as usual on my internet.

Okay, so let’s try this again and it looks like everything is a little stuck. Hopefully I’m not stuck, but I’m stuck here. So the dividend yield, I’m just worried the dividend yield is going to have to get caught. It’s variable on Glencore. It’s a bottom fish stock right here. I would say if you’re going to bottom fish it, maybe put a 10% stop underneath it, but I wouldn’t buy it. It’s a NOT for me right here.

Like I said, I’m going to stick with Vale right now. And Glencore, eh.

Last but not least, I’m going to go with, because I get asked a lot about it, Freeport-McMoRan, FCX. And now as far as FCX goes, I’m not a fan. Again, the stock has gone sideways for so long. It’s a good trading stock, but as far as buying and putting it away, you look at a two-year chart, it’s gone sideways. You look at a five-year chart, it’s risen, but then it’s gone pretty much sideways. And why would you want to rush into a stock?

As far as Freeport goes, we’re talking really copper. And yes, it’s gold and silver, but really when people think about Freeport, they’re thinking of it as a proxy for copper. That’s the principal commodity that they mine. The chart is unimpressive. It’s trading below its 200 day, trying to get above it, but I’m not sure where it’s going to go. So as far as Freeport goes, the chart looks like a lot of nothing to me. Dividend yield on Freeport, yeah, it’s got an 8% profit margin. Not so nice.

Quarterly revenue growth, it is growing. The earnings growth is down a little bit as far as trailing 12 months year over year, but the dividend yield is 1.57%. So why would you buy FCX? But it’s got a nice range to trade it in, but I wouldn’t buy it and hold it, that’s for sure.

So there you have it.

Really of them all, Vale is the only one I’d buy right now for the dividend and also because its trading down. And I like it down there.

That’s it for today. I’ll catch you guys next week. Cheers.