As some of Australia’s biggest and best blue-chip stocks, Rio Tinto Limited (ASX: RIO), Westpac Banking Corp (ASX: WBC) and Newcrest Mining Limited (ASX: NCM) are held in high regard by many investors. However, despite accounting for over 10% of the S&P/ASX 200 Index (ASX: XJO) (INDEX: ^AXJO), I don’t think all of them deserve a spot in investors’ portfolios today.
Here’s what you need to know.
With iron ore’s price fall from over $US135 per tonne in January 2014 to a low of $US91.80 last month, our biggest iron ore miner has been hit hard by a wave of negative investor sentiment, resulting in its shares trading 8.6% lower today than they did at the beginning of the year. However many analysts expect low iron ore prices are here to stay, in addition to low coal and uranium prices. Whilst Rio shares could prove to be cheap at their current price, I am concerned about the possibility of further write-offs. As such I’m steering clear of the stock until they release their half-year results on August 7. After all, patience doesn’t lose you money.
Newcrest has also been hit by falling commodity prices and huge writeoffs in the wake of the worst gold price plunge in 30 years. After falling to just $7 per share in December 2013, Newcrest is now trading above $11 following a review of operations which resulted in significantly lower All-in Sustaining Costs (AISC). Going forward Newcrest has a huge reserve life and is the owner of a number of low-cost world-class operations such as Lihir and Telfer. Currently I feel Newcrest trades around fair value.
Westpac Banking Corp
In the past two decades few companies have benefitted as much as Westpac and Commonwealth Bank of Australia (ASX: CBA) from the housing boom. With a number of key brands such as Bank of Melbourne, St. George and Bank SA under its control, Westpac controls around 23% of the housing market and 19% of the business market. In New Zealand it has 20% of consumer lending and 21% of household deposits. However its Australian wealth platform accounts for 20% of the market and presents itself as the best growth prospect in the short to medium term. In addition, management have also identified Asia as a key growth market.
However many analysts have become exceedingly bearish on Westpac stock. This could be because much of its earnings growth in recent years has come from lower provisions for bad and doubtful debts and lower interest expense. While shares trade near all-time highs and extremely high valuations, Morningstar’s analysts’ consensus forecasts are for only 7.5% earnings per share growth for FY14. As such I’d rate Westpac shares as a ‘Sell’.
Here’s a 7% dividend stock you CAN buy today
If I had to buy one of the above three stocks, it’d be Rio Tinto hands down. However I’d like to analyse the effect of depressed iron ore prices (among other things) before making a decision whether to buy it or not.
However, I’m not sitting on my hands and waiting for August 7 to roll around. I’m looking for other exciting dividend stocks to buy today and I’ve got one on my mind…