The last year has been incredibly difficult for the mining sector, with commodity price falls hurting the bottom lines of most of its incumbents. And, almost inevitably, the share prices of most mining stocks have fallen dramatically, with Rio Tinto (LSE: RIO) (NYSE: RIO.US), for instance, seeing its share price fall by 14% since April last year.
However, the tide could be turning for the sector, as evidenced by a recent surge in investor sentiment for Rio Tinto and, perhaps more acutely, for Centamin (LSE: CEY), which has seen its share price rise by 14% in the last few weeks alone. And, looking ahead, there could be more capital gains to come for both companies.
A Return To Growth
Of course, for Rio Tinto and Centamin, things are set to get worse before they get better. In Rio Tinto’s case, its bottom line is expected to fall by 36% this year as a 10-year low for iron ore continues to impact on its bottom line. However, the efficiency programmes being undertaken by the company, as well as increased production, mean that its earnings are set to rise by 22% next year. This puts Rio Tinto on a price to earnings growth (PEG) ratio of just 0.4, which indicates that its share price could move significantly higher.
Meanwhile, it’s a similar story for Centamin. Its net profit is due to drop by 37% this year, followed by a rise of 29% next year. Clearly, investors have started to look at its medium-term future, but even though its shares have risen strongly recently, Centamin still trades on a PEG ratio of just 0.3. This shows that there could be further gains ahead, with the company offering a very wide margin of safety at the present time.
Income Potential
In addition to their growth prospects, Rio Tinto and Centamin also offer excellent income prospects. As well as yielding 5.3% and 2.6% respectively at the present time, Rio Tinto and Centamin both have scope to increase dividends per share at a rapid rate. That’s because both companies have relatively modest payout ratios, which when combined with their stunning growth prospects means that their dividend yields could move much, much higher. For example, Rio Tinto has a payout ratio of 62%, while Centamin’s is even lower at 27%, thereby making them companies with significant dividend growth potential.
Looking Ahead
So, while recent months have been very challenging for investors in mining stocks, the future appears to be much brighter. And, with their combination of income, growth and value appeal, Rio Tinto and Centamin appear to be two stocks that are well worth buying at the present time.