Consequently, metal prices are expected to remain under pressure. However, despite these concerns, there are hidden gems which are capable of providing good returns. I have picked the two stocks based on their long-term prospects. Both of the companies offer healthy dividends and are thus good for income portfolios. Let’s have a look at these stocks.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): With market capitalization of more than $30 billion, Freeport-McMoRan Copper & Gold is one of the most prominent names in its sector. The stock’s current dividend yield stands at 3.9%. Though it lost 2.6% of its value in the past 12 months, the company is firmly back on track.
Improved labor relationship
The copper-mining company recently solved its labor issues after a month-long strike. Despite the temporary snag in production, the company is not expected to suffer any long-term adverse impacts.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is not the only company dealing with labor issues. Earlier this year, its competitor Southern Copper signed a three-year labor contract in Peru, in which the company agreed to provide a 6.5% wage increase to its Peruvian labor force in the first year. This will be followed by an 5% annual increase in the subsequent years.
Growth through acquisitions
Despite the rather subdued performance of its stock in the recent past, the company expects to boost its profile through a series of acquisitions. It is already committed to a $7 billion purchase of Plains Exploration & Production. The acquisition will help Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) to expand its presence in upstream gas and oil business and reduce its dependence on its core gold and copper business.
The company is further planning to augment its gas and oil business with the acquisition of Mcmoran Exploration Co (NYSE:MMR). While copper prices are expected to remain depressed in the near future, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) will be able to weather the tide with its well-diversified business.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s stock is currently trading nearer to its 52-week low after a deep correction in April. Its first-quarter net income for FY 2013 also dipped 15% in comparison to the first quarter of the previous year.
However, the company also has solid balance sheet with negligible debt. It is operationally and geographically diversified and thus is in good position to withstand usual business bumps. I expect the synergies from its acquisitions to push the stock price further up.
Rio Tinto plc (ADR) (NYSE:RIO) is also a very well diversified company. The stock price has corrected considerably in the recent past following industry-wide concerns, and now presents a good buying opportunity.
Diversified product portfolio and cost-cutting initiatives
While the company has exposure to copper and other metals, a substantial part of its business is involved in coal mining. The company recently augmented its presence in Mozambique with its new collaboration with the state mining company Empresa Mocambicana de Exploracao Mineira. Rio Tinto plc (ADR) (NYSE:RIO) holds 75% stake in the newly formed entity. The acquisition will also help to balance the company’s Mozambique coal business, which has suffered a lot lately.
Rio Tinto plc (ADR) (NYSE:RIO) suffered $3 billion worth of net loss for its FY2012; however, its steps to improve its margins are starting to pay off. The company is looking to curtail $5 billion worth of costs over the course of next two years. Such cost cutting will help the company to remain afloat as commodity prices remain depressed. Rio Tinto plc (ADR) (NYSE:RIO) lost 11.3% of its market value year-to-date. However, at the very same time, it offers 3.7% dividend yield.
Rio Tinto derives 70% of its revenue from its iron ore segment. While the segment currently faces overproduction issues, demand is also expected to increase in the future as growing economies boost their infrastructure. The company is also looking to restructure its management cadre as it recently appointed Sam Walsh as its new CEO. The new commander is likely to focus on efficiency and cost-cutting measures.
The dividend yield makes Rio Tinto plc (ADR) (NYSE:RIO) a better investment than its peer BHP Billiton Limited (ADR) (NYSE:BHP), which offers 3.3% dividend yield. BHP Billiton Limited (ADR) (NYSE:BHP) also has large stake in the petroleum business and thus, unlike Rio Tinto plc (ADR) (NYSE:RIO), may not be in the position to draw gains as and when the metal sector starts rising again.
Bottom line
Markets are currently trading at their peak levels and the basic materials sector has lagged behind so far. But among the rubble, there are some gems as the above companies, which are capable of providing long-term gains as well as income.
The article 2 Promising Metal Companies With Solid Dividend Yield originally appeared on Fool.com and is written by Mitra S.
Mitra S has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Mitra is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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