NAB, Metcash Limited and Rio Tinto Limited: Should you buy?

These stocks are down, but are they out?

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So far in 2014, shareholders in National Australia Bank Ltd (ASX: NAB), Metcash Limited (ASX: MTS) and Rio Tinto Limited (ASX: RIO) have had a start they'd rather forget. Respectively, they are down 4.7%, 9% and 15% despite the S&P/ASX200 (ASX: XJO) (INDEX: ^AXJO) recording a modest gain of 0.76%.

So is now the time to get bullish on the possibility of potential turnarounds or should shareholders pack their bags? Here's what you need to know.

National Australia Bank

NAB is Australia's premier business bank and fourth largest by market capitalisation. Over the past 10 years, whilst its peers such as Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have prospered, NAB's been focused on cleaning up its mess in the UK.

However the poor performance is reflected in its current market price. Its shares trade cheaper across a number of valuation metrics including P/E ratio, P/E growth ratio and P/B ratio. Yet it has the highest dividend yield – forecast to pay a 6.1% fully franked dividend in the next year. Despite growing its mortgage book throughout 2013 and a recovering UK economy, I believe its share price will face further downwards pressure when interest rates increase.

Metcash

Up until recently, I was bullish on Metcash and its ability to take the fight to supermarket giants Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES). However, the introduction of other competitors such as Aldi and Costco has put even more pressure on the owner of Ritchie's, IGA and Foodworks supermarkets who simply cannot compete on price.

Analysts agree that the market is getting more competitive for small independent 'convenience' stores like Foodworks because there are now more big supermarkets with better prices and sometimes it's more convenient for shoppers to get their bread and milk from the local 7-Eleven instead of driving into town. Although it could move into bargain territory in the near-future, I don't believe Metcash is there just yet.

Rio Tinto

Once again the spot price of iron ore fell overnight. At only $US91.50 per tonne it's way down from its monthly average price in December 2013 of $US135.79 per tonne. What does this have to do with Rio? It's Australia's biggest and the world's second largest, iron ore miner. In addition the steelmaking ingredient accounted for over 90% of its FY13 earnings.

Outside of iron ore, Rio's Energy and Aluminium business are also feeling the pressure of depressed commodity prices. An increasing bauxite price and output of iron ore from the Pilbara in Western Australia could provide some relief for earnings in FY14, but I would not be willing to risk it. Like Metcash, there could come a time when Rio is a bargain but with analysts forecasting even lower iron ore prices in the future, I'd rather wait and see what earnings the miner reports at its half-year results presentation in August.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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