Aug 26 2008
If you can stand the heat, be in the kitchen.
It’s hard watching a stock try to find its feet. You wonder when it’s a good time to buy in. Such is the case of Rio Tinto Gold (RTP). In a past blog or two, I told you to keep an eye on it. Now might just be the time to act, putting in a buy at less than what it closed last night. You can decide how much less, $5 or so less, but be prepared that at some point in time, it will probably go up.
There were good reasons to have waited a bit before buying. First, it needed to find a bottom, and it had dropped to under $370. But it didn’t stay long and has seemingly turned around. But that alone doesn’t have my attention.
There’s the P/E, which has become a more reasonable 16. It had been slightly over 22, and now has corrected into a better place. There’s the fact that in yesterday’s press release has shown a huge increase in revenue as the company has adjusted its mining operations to meet the demand of a variety of different natural resources. Those are all good reasons. There’s the fact that gold is taking a well deserved breather, and eventually should push its way up even further as a new President will struggle with the headaches left behind by President Bush. There’s a new agreement that Rio Tinto signed with Walmart, agreeing to supply gold that has been mined to a set of greeen standards, that looks very good. Anyone supplying Walmart is going to sell on volume alone and be profitable. All these reasons alone should merit RTP to be in a portfolio.
But there’s more, and it involves a nasty fight between Billiton and RTP. RTP doesn’t wish to be bought out by Billiton. Billiton wishes to have them and a hostile takeover is on. Unlike the 1990’s, where hostile takeovers can happen quickly and with little a company can do to stop it, this is stuck in the legal and governmental arenas. Countries are now making it illegal to buy up the companies that harvest natural resources, so this battle will be in the hands of governmental officials.
In the meantime, Rio is continuing to do business, but in a wise way. It’s well diversified in everything from salt to uranium, coal to iron ore. It’s looking into expanding into copper in Arizona, a sure sign of a company that’s not sitting around waiting to be bought out.
No doubt the Billiton takeover has everyone nervous. Not too long ago, they released a statement saying that Rio’s share price had no chance to stay so high if their company were to back off. That’s probably a good reason why there is no insider trading, no fund trading.
Larry Edelson, of the Martin Weiss Research group, is always pounding the table to buy gold. Although he hasn’t recommended Rio Tinto specifically, he believes that this dip in gold is a mere correction. He is probably right when he says that resources worldwide will stay in strong demand as the Far East continues to acquire economic clout. If that’s true, and all points to that, then when gold again takes off, companies like RTP will move sharply upward. It’s time to get on that train.
