Today I’ll be discussing the outlook for consumer goods giant Reckitt Benckiser (LSE: RB) and Chilean copper miner Antofagasta (LSE: ANTO). Which of these FTSE 100 companies is worthy of your hard-earned cash?
Defensive rock
Consumer goods giant Reckitt Benckiser recently announced its first quarter trading update for the three months to the end of March. The Slough-based company delivered strong like-for-like sales growth in its Health & Hygiene product portfolios, but this was offset by a flat performance in its Home business and a decline in sales for its Portfolio Brands.
Reckitt is expected to continue on its path of steady growth with analysts predicting a 7% rise in earnings this year, with an even better 8% improvement pencilled-in for 2017. Dividends are forecast at 142.33p per share for this year, increasing to 154.48p for next year, giving prospective yields of 2.1% and 2.3%, respectively.
The shares trade on 24 times forecast earnings for this year, falling to 22 times for the year ending December 2017. The higher-than-average P/E ratio makes the shares look expensive, but this reflects the company’s proven defensive qualities, and reliable growth prospects.
Copper bottomed
South-American mining giant Antofagasta released its first quarter production report last week for the three months ending 31 March. The Chile-based copper miner reported a 7.3% increase in copper production, to 157,000 tonnes, compared to the same quarter last year, but this was 7.5% lower than the fourth quarter of 2015.
Gold production reached 56,700 ounces, an improvement of 1.8% from the last quarter of 2015. The company expects copper prices to remain subdued in the near term, but believes the market may be beginning to stabilise. In the meantime the company remains focussed on improving operating safety, efficiency and profitability.
The medium-term outlook looks very encouraging, with our friends in the City expecting earnings to leap to £76m this year, with another impressive rise to £131m predicted for next year. This would leave Antofagasta trading on 58 times forecast earnings for this year, falling to 34 for the year ending December 2017. Despite the impressive earnings forecasts, the shares still look far too expensive, and are far too risky given the uncertain outlook for copper prices.
The verdict
Reckitt Benckiser is a top-quality defensive stock that provides slow-but-steady growth for its long-term investors. Although the dividend yields on offer are no better than average at just over 2%, risk averse investors might me attracted to the firm’s defensive qualities and steady long-term growth.
Antofagasta is still a very high risk copper play with a very demanding valuation. The stock is only suitable for growth investors convinced of a long-term recovery in copper prices. In my opinion Reckitt Benckiser is a much more reliable and safer investment.