Should you invest in Rio Tinto Limited today?

Credit: iStock

In the last month the share price of mining giant Rio Tinto Limited (ASX: RIO) has sunk almost 7% as investors head for the exits over concerns that an increasing iron ore supply will put pressure on prices. So far it would appear as though these investors have made the right decision.

According to The Metal Bulletin iron ore prices slipped to a two-month low of US$55.30 a tonne overnight, much to the dismay of Rio Tinto, BHP Billiton Limited (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and of course the Australian federal government which has based its budget on an iron ore price of US$55 a tonne.

Despite this Rio Tinto’s CEO Jean-Sebastien Jacques is not concerned. In fact, Mr Jacques is cautiously optimistic that things will improve and believes that the long-term outlook for commodities demand is looking much brighter now.

Although he sees short-term volatility remaining, in an interview with Bloomberg Mr Jacques stated that recent data out of China was pointing to a lift in the construction market. As a result he expects commodities demand to pick up, with copper prices first in line for a resurgence.

So is now a good time to invest in Rio Tinto? Whilst it is true that recent data out of China has been very positive. I would personally hold off an investment in the miner at least in the short term.

Iron ore is the miner’s biggest contributor to revenue, accounting for around 42% of total revenue. With supply increasing from both Australia and Brazil, I expect the the iron ore price will continue to be negatively impacted in the short term. This is likely to put sustained pressure on Rio Tinto’s share price, potentially driving it lower over the next few months.

In the long-term things may admittedly improve. Whilst I would still prefer to invest in other areas of the market, if iron ore and other base metals see a sharp rise in prices I can certainly understand the appeal in investing in Rio Tinto.

Instead of investing in Rio Tinto today I would highly recommend investors check out these three rapidly growing shares. 

I believe each has the potential to climb higher over the next few months and thoroughly outperform the mining giant.

Why These 3 Blue Chip Shares Are Set to Soar in 2016

Discover The Motley Fool's Top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

Motley Fool contributor James Mickleboro 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.