BHP Billiton, Rio Tinto, Fortescue or Atlas Iron Limited: Buy, Sell or Hold?

The iron ore miners are attracting lots of attention, but is it for the right reasons?

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The falling iron ore price has captured much of the market's attention in recent months with the commodity falling from roughly US$135 a tonne last year to below US$90 a tonne for the first time in nearly two years. Australia's miners have certainly felt the pain since then and have each heavily underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) since the beginning of the year.

While the commodity has recovered slightly since that low (now trading at US$95.90), investors are wondering whether now is the time to be buying mining stocks once again. Let's have a look at four of the more popular iron ore miners and whether they are a buy today…

Atlas Iron Limited (ASX: AGO):

Atlas Iron's shares have been particularly leveraged to the commodity's fluctuations this year, having fallen 43.5% since the beginning of 2014. It is estimated that the miner's breakeven price is at around US$80 a tonne, and while numerous analysts have forecast the commodity to fall that low in the second half of this year, it's no wonder investors are losing confidence. While the stock could be a real winner in the short-term should iron ore continue to climb steadily in price, it is looking more likely to be a dangerous over the long term.

Fortescue Metals Group Limited (ASX: FMG):

Fortescue is Australia's third largest iron ore miner, but its lack of diversification and heavy debt make it a risky stock. While the miner's breakeven price should fall heavily as the miner continues to ramp up its production rates, it will remain very volatile to the commodity's price fluctuations. Trading on a forecast P/E ratio of just 4.2, Fortescue could be a good option for investors who are confident that iron ore will retain a strong price going forward, but others would be better off sticking with the two larger miners…

Rio Tinto Limited (ASX: RIO):

Compared to Atlas Iron and Fortescue, Rio Tinto is a much safer bet given its higher production rates and lower breakeven price (estimated to be around US$43 a tonne). As such, even if the iron ore price did fall as low as US$80, it would still make a healthy profit even though its margins would be impacted. While the stock is trading at a relatively attractive price, it could well fall further from today's level. Investors may be better off adding Rio to their watchlist and waiting for an even cheaper entry point.

BHP Billiton Limited (ASX: BHP):

Although iron ore is BHP's primary generator of revenue, the miner is also heavily exposed to coal, copper and petroleum, thus spreading the level of risk assumed by the investor. Although its shares will not rise as strongly as others in the sector should iron ore continue to climb in price, it will be far less volatile if the commodity begins to experience volatility again. Shares are currently priced at $37.59 and offer a 3.6% fully franked dividend yield, based on 2015 forecasts.

The Verdict

In my opinion, BHP is the most appealing stock from this group given its high level of diversification and future prospects. However, I don't necessarily think it's the best mining stock to be buying today…

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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