June 28, 2022- Rio Tinto Group (NYSE:RIO) and Citigroup Inc. (NYSE:C)
Consider this international miner and American banking giant as two of the best stocks to buy now.
Stocks failed to continue last week’s momentum and declined on Monday (June 27, 2022). Yet, the declines were relatively mild. The Dow dipped 0.20%, the S&P 500 0.30%, and the Nasdaq 0.72%. Small-caps, however, led the way, with the Russell 2000 rising 0.34%. As the market continues to evaluate risks, Rio Tinto Group (NYSE:RIO) and Citigroup Inc. (NYSE:C) are two of the best stocks to buy now.
Rio Tinto is a UK-based miner tailor-made for the recent rebound in European equities and rising commodity prices. The Company mines and explores for a treasure trove of potential inflation hedges, including aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and lithium. A prominent player in the metals & mining industry, RIO also boasts strong fundamentals, long-term returns, and substantial analyst upside.
Meanwhile, Citigroup is the other best stock to buy now because of its positioning as an American banking giant. With D.A. Davidson seeing near-term upside for banks thanks to the Fed’s rate hikes, Citi could be one of the biggest beneficiaries. Considered “too big to fail” by many, Citigroup is the third-largest banking institution in the United States behind JPMorgan Chase and Bank of America. It is also one of the world’s largest securities services providers and boasts over $23.6 trillion in assets under management. With approximately 200 million customer accounts in over 160 countries, Citi’s positioning to benefit from current economic conditions is evident. Perhaps that’s why analysts see a 34.08% potential upside.
Rio Tinto and Citigroup are different companies in different sectors. However, in several ways, each is two sides of the same coin as two of the best stocks to buy now.
Rio Tinto Group (NYSE:RIO)
As European equities hit two-week highs with commodities rebounding, the British miner has potentially 47.57% of room to run.
European stocks opened the week at two-week highs while commodities rebounded. As China reopens from COVID shutdowns and inflation remains sky-high, mining stocks and raw materials could see a continued upside.
These catalysts alone should make Rio Tinto one of the best stocks to buy now.
Rio Tinto is a UK-based mining company and is the world’s second-largest metals and mining corporation. While this is not a stock you want if you’re focused on ESG, perhaps now is not the time to base your investment criteria on that. After all, Germany had to revert to coal power because of Europe’s gas crisis. So clearly, ESG isn’t on the minds of many right now.
Rio Tinto sits as a financial juggernaut in the mining and mineral space. Its recent catalysts, including opening its most technologically advanced mine yet in Australia and becoming the first producer of scandium oxide in North America, are notable.
The Company could also benefit from inflation and combat any economic shock.
Furthermore, Russia is a crucial producer of several of Rio Tinto’s primary commodities, such as aluminum and other metals. With exports of Russia’s raw materials severely disrupted, this could be a massive opportunity for Rio Tinto.
Rio Tinto’s Annual Figures Soared in 2021- Copper and Iron Ore Production Also Rose Year-Over-Year
Rio Tinto did not release a quarterly earnings report. However, it released a Q1 production update. Although several of its commodities saw a decline in production, mined copper rose 4% year-over-year, as did IOC iron ore pellets & concentrate by 3%.
Additionally, based on its FY 2021 annual report, the Company’s financial metrics are skyrocketing.
- Consolidated sales revenues increased 42.38% to $63.5B
- Net cash generated from operating activities increased 59.12% to $25.3B
- Underlying EBITDA increased 57.74% to $37.7B
- Net earnings increased 115.31% to $21.1B
- Dividends per share almost doubled from 557 cents to 1040 cents
Additionally, Finbox projects Rio Tinto’s revenue to see a 5-year CAGR of 13.5%.
Based on These Figures, Rio Tinto’s Outstanding Fundamentals and Dividends Should Not Come As a Surprise
Rio Tinto’s fundamentals are nearly perfect. It has everything you want when finding one of the best stocks to buy now based on healthy Liquid Balance Sheets, Profitability, and Operating Efficiency. A nearly perfect 8 out of 9 Piotroski Score reflects this.
A deeper dive into its margins paints an even prettier picture. RIO is an enterprise whose cash flows can sufficiently cover interest payments while making the most of its assets, equity, profits, and operating income.
Consider the following margins.
While we mentioned that Rio Tinto nearly doubled its dividend from 2020 to 2021, this doesn’t tell the whole story of what an outstanding dividend payer RIO is. A 17.2% dividend yield is mouth-watering for investors. However, for 5 consecutive years, RIO hiked its dividend. That’s roughly 400% higher than the sector median. With this type of track record, it’s probably not surprising to see projections pegging its potential dividend growth at 248.4% at a 5-year CAGR of 38.0%.
RIO is a Long-Term Outperformer That’s Deeply Undervalued
Rio Tinto has been around since the 1870s. But let’s talk about recent history. Over the last five years, the RIO stock has seen a strong return.
So when you see the RIO stock at levels near its 52-week lows, roughly -24.26% below its 2022 highs, and at a nearly oversold RSI of 36.90, the opportunity looks intriguing. Opportunities to get one of the best stocks to buy now at a discount don’t come around often.
For one, despite its long-term outperformance, RIO currently trades with a trailing P/E of 5.0x and a forward P/E of 5.3x. Its 2.1x price-to-book, 0.04 PEG, 1.7x forward price-to-sales, and 1.7x trailing price-to-sales signal a stunningly cheap valuation, as well.
With Mounting Catalysts, RIO Has a 47.57% Analyst Upside
Jefferies Financial Group was the latest analyst to upgrade RIO’s coverage from HOLD to BUY on June 7, 2022.
In total, 4 Wall Street analysts over the last 3 months, offered a 12-month price target for RIO. The overall consensus based on Rio Tinto’s street-high, low, and average forecast is that the appropriate price target is $90.00. This represents a 47.57% upside from its June 27, 2022, closing price of $63.02.
RIO’s year-to-date low and high are $60.12 and $84.69, respectively.
Citigroup Inc. (NYSE:C)
This Big 4 bank remains deeply undervalued with a 34.08% upside.
We briefly touched on the size and scope of Citigroup’s operations as the third-largest bank in America. However, its international footprint and widespread securities services set it apart from the rest of the Big 4.
Calling it a prominent player in the banking industry is an understatement.
With banks potentially seeing significant upside with the Fed’s rate hikes, Citigroup is one of our best stocks to buy now. While it’s had a challenging 2022, Citi’s valuation, dividend, and analyst upside point to a buying opportunity.
Don’t be “Stressed”- Citi Passed the Test
The biggest U.S. banks rallied on Friday (June 24, 2022) after passing the Federal Reserve’s annual stress test. The Fed “tested” 34 lenders and measured how they would perform during a severe economic downturn.
Except for Bank of America, which relatively underperformed, the results were solid. They indicated that banks are well-capitalized and positioned to push through a downturn overall.
Citi’s results indicated that the Company could hike its stress capital buffers to cover potential losses and day-to-day operations. Yet, investors didn’t seem worried. In the short term, this may pause buybacks (which management has been aggressively doing), pause dividend growth, and cut into EPS. However, investors seemed pleased with the stress test results, and C shares spiked by over 3%.
C is a Quintessential Value Play
The C stock sits over 30% below its 2022 highs and continues hovering around its 52-week lows. While the stock price could fall more as its RSI does not indicate oversold territory, markets may have already priced in a recession. According to JPMorgan, the market is pricing in an 85% chance of a recession.
By almost any metric you could think of, Citigroup is highly undervalued.
Don’t be Stressed- Its Latest Earnings Beat Points to Continued Dividends and Some Strong Margins
Citi’s management continues to buy back shares aggressively. Based on the stress test, how long this could last is anyone’s guess. However, the fact remains that management believes in the Company’s upside potential.
Perhaps its latest earnings beat adds some context as to why this is one of the best stocks to buy now.
Many analysts feared the worst for Citigroup’s Q1 2022 earnings. While figures did mark year-over-year declines, Citi easily topped profit and revenue forecasts based on better-than-expected trading figures from surging volatility.
EPS came in at $2.02- over 30% higher than the expected $1.55.
Revenue also came in at $19.19 billion, over $1 billion more than the expected $18.15 billion.
C has a solid foundation to weather the storm and beat earnings again in a few weeks. For example, its 9.5% ROCE is solid, and its 30.8% operating margin is fantastic.
Its 7 out of 9 Piotroski Score also reflects a company with healthy Liquid Balance Sheets, Profitability, and Operating Efficiency.
With its stress test, it’s unlikely that C will hike its dividend soon. However, its current dividend yield of 4.3% is attractive and could grow long-term at a 26.1% 5-year CAGR.
Analysts Still See Considerable Upside for C
15 Wall Street analysts in total, over the last 3 months, offered a 12-month price target for C. It currently has a high price target of $93.00, a low of $53.00, and an average of $64.47. While the average represents a 34.08% upside from June 27, 2022’s $47.83 close, even in a worst-case scenario, the stock could move another 10.81% based on its low target.
C’s year-to-date low and high are $45.40 and $69.11, respectively.