Its been a grim week for iron ore: on Wednesday, the price of iron ore hit a new low of $70, leaving it 48% lower than at the start of the year.
Prices seem unlikely to bounce back quickly, either a new report from Goldman Sachs claims that the iron ore market needs to absorb a surplus of around 110 million tonnes next year.
Against this backdrop, are iron ore miners BHP Billiton (LSE: BLT) (NYSE: BBL.US), Rio Tinto (LSE: RIO) (NYSE: RIO.US) and Anglo American (LSE: AAL) still attractive? All three remain profitable at todays prices, and have been open about their aim of maintaining market share while driving high-cost competitors out of business.
Iron ore may keep falling, but each of these companies is competing to capture long-term market share, and while Chinese growth may be slowing, I dont think its likely to stop in the foreseeable future.
I believe all three firms remain attractive, but theyre all different so which should you buy?
Rio Tinto: Rio remains the purest play on iron ore. Around 80% of the firms underlying profits come from iron ore, so earnings are directly linked to iron ore prices.
Rios prospective yield of 4.6% is unlikely to be threatened by this years price decline, although dividend growth may slow if prices dont pick up next year.
BHP Billiton: For investors who dont own oil shares, BHP is ideal: iron ore, oil and gas accounted for 76% of operating profit last year, with copper providing a further 22%, providing diverse exposure to four of the worlds key commodities.
BHP shares offer a 5% prospective yield, and the firms chief executive, Andrew Mackenzie, recently told Reuters that the firms dividend remains well covered at current iron ore prices.
Anglo American: Anglo is rather different: just 42% of its underlying operating profit came from iron ore during the first half of this year. Copper and diamonds each accounted for a further 25%, highlighting Anglos exposure to the luxury goods market.
Anglo shares currently trade below book value and offer a 4.2% prospective yield, making them an interesting value alternative to Rio and BHP.
Todays top buy?
Anglo looks cheap in terms of book value, but thats because earnings have been weaker than at BHP or Rio.
In my view, Anglo could be an attractive recovery buy, but BHP and Rio remain the top picks for income seekers.
I think the volatility associated with commodity stocks is acceptable, given the diversity they add to my portfolio, but not everyone agrees.
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Roland Headowns shares in Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.