Are Rio Tinto Limited shares cheap?

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With Brexit fast becoming a distant memory for markets around the globe, investors are scrambling to identify stocks which were beaten down in the lead up to the United Kingdom’s referendum but which are yet to fully recover.

Mining giant Rio Tinto Limited (ASX: RIO) which is listed on both the ASX and the London Stock Exchange saw its share price fall from around $52 at the start of May to below $43 in late June. Since then the stock has zipped higher to the $48 level, however, there could be more gains ahead.

Here’s why

This week, a new Chief Executive Officer, Mr Jean-Sebastien Jacques, took the helm at Rio Tinto. A fresh set of eyes and the opportunity to make changes could be just what the diversified mining group needs.

According to a report in the Australian Financial Review (AFR), Mr Jacques has already stated that coal investment is off the agenda and “played down the prospect” of making acquisitions.

What’s more, the AFR has also reported that Rio Tinto has abandoned plans for its US$20 billion iron ore project in Guinea due to the weak outlook for the commodity.

This ‘real world’ assessment of the market changes which have occurred is a pleasing sign for shareholders that a conservative approach to allocating their capital will occur.

Foolish takeaway

The commodity sector is inherently cyclical but there are also structural shifts occurring. While Australian politicians might not be as progressive, the rest of the world appears to be acknowledging the need to move away from coal and towards more sustainable forms of energy supply.

With the potential exception of coal, most commodities remain near the bottom of a cycle from which they will one day almost certainly recover.

While single commodity-exposed businesses such as Fortescue Metals Group Limited (ASX: FMG) could best be avoided, a diversified miner like Rio Tinto or BHP Billiton Limited (ASX: BHP) is arguably a sensible way for investors to gain exposure to the commodity sector.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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