BHP

Rio Tinto Focused on Cutting Costs

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Best Ideas Newsletter portfolio holding Rio Tinto (RIO) has been under significant pressure as global macroeconomic weakness and challenges facing the mining industry have not been kind to the company. The iron ore giant is focused on cutting costs as never before amid the turmoil in the global commodities markets, where some commodity prices have fallen to levels not witnessed since the Global Financial Crisis. China’s equity market collapse and the uncertainty in the Eurozone as it relates to the Greece debt negotiations haven’t helped. Ongoing flawless cost control will remain vital for Rio, as we expect the global surplus of iron ore to continue to prevent a strong recovery in iron ore prices, at least in the near term. … Read more

Agricultural Equipment Industry Stuck in the Mud

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The agricultural equipment industry is dependent on a global economy that remains mired in mediocrity. Durable goods orders fell in both April and May 2015–as well as 9 of the 10 months prior–and the solid 3.4% increase in June is misleading due to the extraordinary number of aircraft orders. Excluding transportation orders, the increase for the month of June was a slight 0.8%. Economic conditions in the US, if construed as positive, in the words of Caterpillar (CAT), the global economy “remains relatively stagnant,” with ongoing weakness in China and Brazil and uncertainty across the Eurozone given the crisis in Greece. Weak commodity prices are not suggestive of a near-term recovery for the overall economy either. Crude oil prices are … Read more

Iron Prices to Move Higher, Ore Is It Wishful Thinking?

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A number iron ore producers–including Vale (VALE), BHP Billiton (BHP), Cliffs Natural Resources (CLF), and Best Ideas Newsletter portfolio holding Rio Tinto (RIO)–have seen share prices jump after reports that Chinese demand for the key ingredient in steel production will increase in the second half of 2015. This is good news for iron ore producers, as approximately half of the world’s steel is produced in China. According to Vale CEO Murilo Ferreira, Chinese imports of iron ore will increase significantly in the back half of this year as domestic production is expected to be down ~200 million metric tons. According to Ferreira, a significant amount–more than most realize–of Chinese iron ore producers have ceased operations, boosting the country’s import demand. … Read more

When “Bad” News Is “Good” News…Take A Euro Trip?

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Pack the bags, kiss the grandkids, it’s time to do some traveling!!! Maybe to Europe? From a global perspective, for those whose wealth and income is generated in US dollars, you can arguably buy more with one US dollar today than at any other time in the past 12 years, according to a popular index that measures the value of the dollar versus a basket of other currencies. Expectations are being ratcheted up for impending interest rate hikes by the Fed, and this means that assets are flying into US greenbacks from all over the world. The dollar is strengthening against the euro, the pound, the loonie, the aussie, the rand, and the list goes on and on. This decade … Read more

BHP or Rio Tinto? Is That the Right Question?

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Dr. Copper is speaking, and we don’t like what he’s saying. For those long-tenured market participants, a look at the copper markets (JJC, CPER, CUPM) generally provides insight into the health of the global economy. Copper is used in just about everything related to construction and manufacturing, and the price of the metal signals the relationship between its supply and demand. A strong copper price, therefore, indicates that demand for the metal is healthy, and that in most cases and by extension, the general economy is healthy as well. What we are witnessing in the copper markets, however, is something else, and on a high level, no different than the shellacking the crude oil markets have been experiencing in recent … Read more

$45 Oil Prices!?!? There Is Never a Sense of Urgency When One Is Prepared

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Image Source: Macrotrends The bull market in energy (XLE) has lasted for the better part of a decade. Ever since the turn of the new century, energy perma-bulls have made the case that “black gold” (USO) should continue its ever-upward price advance thanks to ongoing demand from emerging and developing economies coupled with reduced inventories and areas of supply. We’re seeing this thesis challenged right at this moment. In deciding not to cut crude oil output in the face of oversupply and falling prices, the Organization of the Petroleum Exporting Countries (OPEC), for the lack of a better phrase, is now essentially engaged in a price war with producers in the US that are using breakthrough technology to produce oil … Read more

Europe and China

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Europe and China are on high alert. European Central Bank President Mario Draghi made it known that the ECB will do everything in its power to “expand its asset purchase programs if inflation fails to show signs of quickly returning to the ECB’s target.” Just a few weeks ago, Draghi had sent shudders through the global equity markets with his view that “without reform, there can be no recovery.” It appears that significant and aggressive monetary action may be the only option for a European continent that could once again be headed into recession and/or deflation. This announcement won’t be the last that we hear regarding moves to aid the European economy. Iron ore prices have been in free fall … Read more

This Just Feels Different…Mr. Brown

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We think the correction is coming. Here are 7 reasons why we plan to reduce exposure to cyclicals and add some protection to the portfolios. By Brian Nelson, CFA I hope you don’t mind my using baseball analogies. Baseball and investing are perhaps the only two endeavors where if you get more than half right, you’re at the top of the list. In any case, you don’t have to be a big baseball fan to appreciate the similarities. I used an example with Ted Williams in this piece about fat pitch investing, but there’s another analogy that is worth sharing. I’ve been to the Louisville Slugger Museum and Factory Tour a few times in the past couple years. My little … Read more

Rio Tinto Remains One of Our Favorite Ideas for Commodities Exposure

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Firms in commodities-driven industries are notoriously difficult to value–not only is there execution risk related to their cost structures but the price they receive for the respective commodities that they produce is cyclical—and driven by external factors beyond their individual control. For example, BHP Billiton (BHP) can’t necessarily raise its prices on standard-grade iron-ore at a high-single-digit pace unless the market colludes (others follow along with its price hike). This is unlike a company such as Hershey (HSY) that can hike prices almost at will to offset rising cocoa costs. That’s why commodities firms can only carve out competitive advantages by being the low-cost provider (their prices are set by the marketplace). Though it is more difficult for a commodities-producing … Read more