Liz Truss was inaugurated as the new Prime Minister earlier this week. She arrives with a huge in-tray of issues, not least the question of how to tackle sky-high inflation and weak economic growth amid deteriorating conditions for UK shares.
While the chances of avoiding a recession seem slim, Truss will be hoping that her premiership can deliver some fiscal stability over the coming years, and something akin to a ‘Boris bounce’ in the short term.
All UK businesses are grappling with an inflation rate running at 10.1% in the 12 months to July, which has contributed to the FTSE All-Share Index falling by 6.85% in the year to date.
But all good investors see opportunities in a market downturn, so I’m taking a closer look at the following UK shares that have taken a tumble in recent times, but the fundamentals remain strong, in my opinion.
Rio Tinto
The stock value of Rio Tinto (LSE:RIO) has fallen by over 10% in the past month, which can probably be attributed to its first half profit return of $8.6bn – a 28% decline on the same period last year.
However, Rio’s record earnings in the first half of 2021 were a result of high commodity prices at the time, especially iron ore, which accounts for almost 90% of the FTSE 100 firm’s earnings.
The iron ore price has halved since then, and impacted Rio’s profit accordingly. But the world’s second largest miner maintained a dividend of $4.3bn — its second highest half-year payout ever — and is looking to diversify its business with investments in cleantech commodities.
On Tuesday, Rio sealed a definitive arrangement to buy out Turquoise Hill Resources – its partner in the Oyu Tolgoi copper mine in Mongolia. The $3.3bn deal gives Rio greater exposure to a commodity of which demand is projected to increase 50% by 2040 as the clean energy transition develops.
ITM Power
Here is another London-listed company that has struggled of late. ITM Power (LSE:ITM) is down 25% in the last month and 54% going back six months. Not pretty reading for current shareholders in the renewable energy firm.
By way of introduction, ITM is focused on building key infrastructure for the nascent green hydrogen industry. The company has a notable partnership with ScottishPower which aims to develop a green hydrogen facility at an onshore wind farm near Glasgow, amongst other projects across Europe.
This net-zero fuel source should be a hit with climate-conscious investors, but that isn’t the case yet considering ITM’s falling share price. Seemingly, energy investors have reverted to funding new streams of traditional fossil fuels as the energy crisis continues to bite.
But taking a long-term view on the market is essential, and with the climate crisis likely to have an increasing impact on our lives, investors will surely pivot to renewable energy options once the crisis abates.
So here we have two companies that have suffered in recent months but are well positioned to take advantage of long-term investment trends.
And if Truss can stop the rot in the UK economy, we might even see Rio and ITM’s prospects brighten sooner than expected.