Is the Rio Tinto share price a buy in October?

The miner is continuing it's volatility in the second half of 2022.

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Key points
  • Rio Tinto shares have faced troubles on the chart in 2022
  • Investors have punished Rio in unison with price swings in the iron ore markets
  • Brokers have mixed views on the outlook for the Rio Tinto share price

Amid a busy year on the charts, the Rio Tinto Limited (ASX: RIO) share price has continued in a sawtooth-like fashion and hit 52-week lows in September.

In what's been an otherwise strong year for resource stocks in mining and energy, the diversified mining giant has failed to impress in 2022.

Instead, shares have drifted lower and reached year lows of $87.78 on 26 September. Naturally, the question then turns to Rio's outlook for October.

busy trader on the phone in front of board depicting asx share price risers and fallers

Image source: Getty Images

Is Rio Tinto a buy?

Those hoping to secure Rio shares at these compressed prices might think so. Pending one's view on the industry outlook, there are numerous tailwinds to mention from macroeconomic drivers.

However, analysts covering the share aren't as conclusive.

Rio is currently rated a buy from 10 out of 18 brokers, with the remaining coverage saying it's a hold, according to Refinitiv Eikon data.

The consensus price target from this list is $109.77, implying around 12% of upside potential from the current price of $97.54.

The Rio share price also trades on a forward price to earnings (P/E) ratio of 9.3 times, ahead of the GICS Metals & Mining Industry's median of 6.6 times.

This is coupled with a price-to-book (P/B) ratio of 1.92 times. Again, this is a step in front of the peer median's 1.46 times.

It's not all capital gains that make up the Rio Tinto investment debate, however. Dividends are a large part of the total return investors can expect in this name.

According to Refinitiv, analysts estimate Rio to deliver a 7.6% dividend yield in the next 12 months. This is again ahead of peers but behind its trailing 12 month's 8.8% yield.

The company also produced a return on equity (ROE) of 41.6% in 2021. This will be an interesting number to compare against in the mining giant's upcoming FY22 results in October.

Is the premium on Rio Tinto shares worth it?

All-in-all, it looks as if investors are asked to pay a small premium to buy Rio shares versus comparable peers in the industry.

The question is whether the premium is justified or not.

While many of Rio's commodity markets have performed exceptionally well in 2022, its hero product, iron ore, has mirrored the Rio Tinto share price this year.

As seen below, the two have tracked each other with striking similarity; drifting to continuous new lows in unison.

With iron ore trading near its 52-week lows as well, pressure remains from the bottom on the Rio Tinto share price. So far, it's down more than 2% this year to date.

TradingView Chart

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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