Is Polymetal a bargain compared to its competitors or are there better options out there? Let’s explore.

Will FTSE 100 mining stocks go higher?

Three Footsie mining stocks on my watchlist have made flying starts to 2022.

The Anglo American (LSE: AAL) share price climbed 34% following a $12bn increase in operating profit and a $1.7bn net debt reduction. Over a third of the miner’s 2021 EBITDA came from platinum group metals. Looking ahead, the company should prove resilient to geopolitical uncertainty. Anglo American, which is up 33% in a year, operates on six continents and has no Russian presence, unlike Polymetal.

Antofagasta (LSE: ANTO) is also racing ahead of the Polymetal share price, rising 22% this year (but down 10% over 12 months). As copper mining is the lifeblood of this Chilean multi-national’s business, shareholders will be encouraged by Goldman Sachs‘ 12-month copper price target of $13,000 per tonne. Antofagasta can build on a robust financial position after earnings per share rocketed by $87.80 last year.

Rio Tinto (LSE: RIO) stock completes the trio — it’s up 25% in 2022, but only up 4% in a year. Iron ore production accounts for almost 78% of its underlying earnings. In 2021, Rio Tinto generated +60% net cash and ordinary dividends per share rose 71%. Moreover, China’s iron ore imports remain stable in 2022, despite its economic slowdown. This is good news for the Rio Tinto share price.

With global interest rates rising, metal prices and mining stocks may fall so all of these shares come with risks. However, I believe the metals bull market could just be beginning as production seems unlikely to meet demand. For me, the outlook remains positive while supply side issues persist.

Will the Polymetal share price go lower?

Polymetal’s focus is precious metals, particularly gold and silver. It has operations in Russia and Kazakhstan. Although it consistently increased production over five years, the share price has been hurt by liquidity troubles caused by sanctions on Russian banks.

In further worrying signs, Polymetal postponed its decision on its 2021 final dividend payment. And Deloitte recently resigned as its auditor, threatening its London Stock Exchange listing.

Arguably, the stock’s substantial decline and a dirt cheap price-to-cash-flow ratio of 1.4 mean the risks it faces are priced in. Nascent plans to separate its Kazakh assets from the rest of the business lifted the Polymetal share price somewhat in recent days.

Nonetheless, I’m pessimistic about Polymetal shares. Headquartered in Cyprus, it avoided direct sanctions like those levied on Roman Abramovich’s Evraz. In a rapidly evolving situation, this could change.

The mining shares I’d buy now

Exposure to metals plays an important role in my diversified portfolio. I’m impressed by all three FTSE 100 stocks on my watchlist. They have strong balance sheets and are collectively spread across different geographies and commodities. I’d divide any spare cash between them.

By contrast, I see potential for further declines in the Polymetal share price. It’s simply too risky for me to buy at present, so I’m looking elsewhere for a solid gold miner.

The post Will FTSE 100 miners outshine the Polymetal share price in 2022? appeared first on The Twelfth Magpie.

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Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What is the BlackRock World Mining Trust?

As the name suggests, this fund is dedicated to owning companies that explore, extract and sell key metals and minerals needed across the globe. 

Unsurprisingly, the portfolio’s major holdings are some of the biggest miners going. Brazilian giant Vale features heavily, as do FTSE 100-listed firms, BHP Group, Anglo American and Rio Tinto. While 40% of assets are invested in mining firms that source a number of metals, 20% of the fund is invested in copper plays. Almost the same amount is devoted to gold miners.

Naturally, an actively-managed investment trust means fees. Based on its most recent fact sheet, BRWM charges 0.9% a year to manage holders’ money. 

Why is it getting popular?

I think there are two reasons why this investment trust is in demand. First, there are fears over inflation and demand for safe-havens. Mining companies are one example of the latter.

The thinking behind this is that prices tend to rise when economies are flying. Since more things are being made, it makes sense to back those companies who provide the materials needed to make them.

The second reason why the Blackrock World Mining Trust might be proving popular is the excitement surrounding renewable energy sources and electric vehicles. The fact that these featured heavily in the $2trn spending plan announced by US President Joe Biden back in March shows how hot these themes will be going forward. It’s clear that vast amounts of metal will now be needed to bring everything to fruition.  

Both of the above should prove to be tailwinds for miners. A rise in demand should lead to higher earnings. Higher earnings should boost share prices and investor returns. A boost to investor returns should, rather neatly, provide some protection from the aforementioned inflation. 

I’d also expect more dividends for shareholders. As things stand, this investment trust offers a yield of 3.2%. That’s lower than you could get from buying some of the individual miners from the FTSE 100. However, payouts will arguably be obtained at a lower level of risk. 

Should I buy?

Based on future prospects, I find the case for investing in BlackRock pretty compelling. Even so, it pays to consider the flip side. 

If concerns over inflation subside, those already holding could flee the investment trust and recycle their profits into growth stocks again. Even if this doesn’t happen, there will always be some who want to bank gains. It’s also worth remembering that commodity investing can be an ‘interesting’ ride, even when times are good. 

Personally, I’m fine with above-average volatility, so long as I know I can stay on board for the long term. And, even if (when) the investment trust does temporarily dip in value, that dividend stream should compensate. If I’d held the shares, I’d simply receive, reinvest and repeat. Yes, the ongoing charge is on the high side, but the diversification aspect makes me think BRWM is worth the cost.

With a potential commodity supercycle on the way, I’m sorely tempted to begin building a position in this investment trust in haste.

The post This investment trust is soaring in value. Should I buy in June? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today — 14 months later — I’m taking another look. 

Greatland Gold: a lucky punt?

Now, let’s be clear from the outset — there was an awful lot of luck in my call. Investing in any miner, let alone a minnow, is fraught with risk.

First, there’s no guarantee it’ll find what it’s looking for, or be able to extract sufficient quantities of what it does find to make the business profitable. Second, mining can be an expensive business. Many companies go bust before they’ve a chance to make their mark. Third, miners have no control over the prices of the commodities they extract. Fourth, mining shares have a tendency to ‘pop and drop’, catching unwary investors on the price spike.

All that said, Greatland Gold has certainly done all it can to put itself in a great position to continue rewarding investors. Recent news has only served to boost the investment case further.

Good progress

In August, the company announced it has commenced drilling at its delightfully-named Scallywag prospect in the Paterson region of northern Western Australia.

As CEO Gervaise Heddle commented, many of the targets in this region “display similar geophysical characteristics” to Greatland’s stunning Havieron gold-copper discovery “where ongoing drilling under a Farm-in with Newcrest has returned a series of outstanding results.” This certainly bodes well. 

Speaking of Havieron, the company has also announced it had secured a mining lease relating to the project. Assuming GGP is able to get it into production, this could eventually become one of the most valuable gold mines in the world.

On top of this progress, Greatland Gold has benefited hugely from the surge in the price of the precious metal since the coronavirus struck. Despite coming off the boil in recent months, the value of gold has still soared around 25% since the beginning of 2020!

Sell or hold?

Regardless of whether the GGP share price would be where it is in the absence of the pandemic, the fact remains that a lot of early holders will be sitting on big profits. What now? 

For me, an optimum strategy for existing owners might be to bank some profit and keep the rest invested.  After all, such an incredible return over such a short period shouldn’t be taken for granted. Greatland Gold remains a company in its infancy and a lot could still go wrong. Notwithstanding, keeping some money invested will allow holders to benefit from any further positive news on drilling. 

Naturally, no one knows where the gold price will go in the short term either. Since there are simply too many factors that could impact sentiment, one potentially great destination for GGP profits, in my opinion, would be VanEck Vectors Junior Gold Miners ETF.

Diversified across 80 small- and mid-cap miners, this fund ensures investors have exposure to the gold price without the risk the comes from owning just one stock. The ongoing charge is a reasonable 0.55%. 

The post The Greatland Gold share price is up 1,200%! My call was right, so what would I do now? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100 constituent BHP Group (LSE: BHP) is a great example. Shares in the world’s largest miner are up a very respectable 25% over the last year. However, if you’d had the courage to buy the stock just over three years ago when the commodity market last dropped like a stone, you’d be looking at a gain of around 200%. 

Despite the less-than-enthusiastic reaction from the market to today’s interim results, I believe those already invested should stay the course.  

Profits down

As a result of “unplanned production outages” at its operations in Australia and Chile (preventing the company from realising the $460m of costs savings it had previously forecast), BHP stated that production is now likely to be “broadly flat” in 2019.

This, coupled with a fall in copper prices and decline in ore quality, led the company to report underlying attributable profit came in at US$3.7bn — 8% lower than that reported for the previous six months. 

Underlying earnings were $10.5bn, down almost 3% from the $10.8bn achieved in the prior trading period. Margins from continuing operations also fell from 55% to 52%. 

Long term focus

BHP’s shares were trading on 12 times expected earnings before markets opened this morning. That’s a little more than top tier peers such as Rio Tinto and Glencore, but reasonable relative to the market as a whole. 

Whether the positive momentum over the last year will continue is hard to say, of course. With a market capitalisation of £95bn, the shares are certainly very unlikely to rocket. As legendary growth investor Jim Slater once remaked, “elephants don’t gallop.“

Nevertheless, there are reasons to remain bullish on BHP’s prospects both in the short and long term in spite of today’s fairly disappointing numbers. 

With regard to the former, CEO Andrew Mackenzie expects a “strong second half” will make up for the difficulties experienced in the first six months and that the company has “a portfolio of attractive development opportunities.“

Longer term, I’m inclined to think that declining stockpiles and the growing popularity of electronic vehicles could cause a very decent rise in the prices for many metals in the coming years, particularly copper. 

There’s also much to be said for BHP’s geographical and resource diversification. Unlike smaller miners, the company produces a wide range of commodities (iron ore, coal, uranium, silver, lead, zinc, uranium, gold, oil and gas) in addition to the aforementioned red metal. That doesn’t protect you from a general downturn, of course, but it does make it decidedly less risky play if you are contemplating getting exposure to the sector.

Having also disposed of its onshore assets to BP over the period and returned $10.4bn to shareholders through a combination of share buybacks and a special dividend last month, BHP should also be of interest to income hunters.

Today’s interim payout may have been kept at 55 cents per share but, with its debt pile down by $1bn (to $9.9bn) since the end of June and expected to “remain at the lower end” of its target range of between $10bn and $15bn, I see no reason why BHP won’t continue rewarding its loyal holders going forward. 

The post Don’t panic! This FTSE 100 dividend stock still looks a solid long-term hold to me appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Buying shares in small-cap companies can be hugely rewarding for risk-tolerant investors, particularly if game-changing news is just around the corner. Here are two examples from my own portfolio that I think could be set for a transformative 2018.

Positive developments

I last looked at AIM-listed fertiliser play Harvest Minerals (LSE: HMI) almost a year ago. Back then, the company had only just received the trial permit for its Arapua resource in Brazil.

Despite making nothing but solid progress, Harvest’s shares fell out of favour with investors for most of 2017. Recent developments suggest all this could be about to change.

In November, Harvest announced hugely encouraging test results relating to its direct application natural fertiliser and remineraliser product — KPfrtil. In contrast to traditional sources, it was found that only a very small amount of potassium from KPfrtil was lost from leaching before it could be used by plants. As a result, Harvest’s product will only need to be applied in a single dose — a massive draw for potential customers.

In addition to this, Harvest stated that its pre-certification sales drive for KPfrtil was “progressing well” with the company expecting demand to increase once it is officially certified by the Brazilian Ministry of Agriculture, Livestock and Supply (MAPA). Approval on this is likely to come early in the new year.

In a further positive development, Harvest informed shareholders that the Brazilian Government had approved a bill that would see a reduction in royalty rates of fertiliser projects from 3% to just 0.2% as part of an effort to boost the country’s mining sector and the general economy. Thanks to its low production costs and potentially huge margin, Harvest is expected to “benefit significantly” from this decision.  Indeed, assumed royalty costs of $1.58/t based on sales of $60/t of product have now been slashed to just $0.12/t.

With Brazil determined to become self-sufficient in fertilisers by 2020, I’m quietly confident that Harvest could easily test previous share price highs in 2018. 

Multi-asset company

Horizonte Minerals (LSE: HZM) is another Brazilian-based company I’ve taken a liking to, albeit more recently. As discussed previously, the £47m cap miner owns the potentially-very-lucrative Araguaia nickel resource. Given that the Feasibility Study on this is both imminent (due to land early next year) and highly anticipated, it’s perhaps not surprising that the business has doubled in value over the last five months.

However, it was last week’s news that I think could convince even more investors to take a position in the company.

In a move that appeared to surprise the market, Horizonte revealed a deal to acquire the advanced stage Vermelho project from mining giant Vale and, in doing so, become a multi-asset company. For just $8m ($2m of which will be paid upfront with the balance due on the first commercial sale of product), Horizonte has purchased an asset which offers annual production capacity of 46,000 tonnes of nickel and 2,500 tonnes of cobalt. 

With Vermelho now under its belt, Horizonte has quickly become one of the largest nickel development companies in the world. This fact, when combined with the huge surge of interest in electric vehicles (which require roughly 11kg of the metal per battery), leads me to suspect that investor sentiment towards the company will continue to steadily grow over the next 12 months.

The post 2 small-cap stocks I’m watching closely in 2018 appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Harvest Minerals and Horizonte Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Massive dividend hike

Last month the Chile-based copper mining giant reported a strong first half with earnings (before interest, tax, depreciation and amortisation) up 88% to $1.08bn, compared to just $575m for the first six months of 2016. Group revenue came in 42% higher at $2.05bn, as realised copper prices increased by 25% and copper sales volumes grew by 14%.

The improved performance led management to hike the interim dividend by a massive 232% to 10.3¢ per share in line with the company’s policy of paying out a minimum of 35% of underlying net earnings. However, with the share price now at four-year highs this equates to a prospective dividend yield of just 1.5% at current levels. Certainly nowhere near enough to gain the attention of income-focused investors.

City boffins

As with all resource stocks, the direction of travel for Antofagasta’s shares is highly geared to the price of the commodity it produces, in this case copper. City boffins often make widely differing assumptions on the future price of metals, and this in itself can make it difficult to assess the company’s prospects.

Nevertheless, analysts’ consensus forecasts suggest that Antofagasta is likely to see a very healthy 52% uplift in underlying earnings for the current year to December. However, the strong share price rally means the miner is now trading on a very demanding P/E rating of 26 for 2017.

The red metal

For those who are bullish on the price of copper and still keen to gain exposure to the red metal, you might want to take a look at Kaz Minerals (LSE: KAZ) instead. As its former name (Kazakhmys) suggests, the copper miner’s main assets lie in the Central Asian republic of Kazakhstan.

The group’s share price is already up 80% since my last recommendation in March, and by a staggering 393% over the past 12 months. But if the price of copper continues to head higher, then I believe its shares are likely to outperform those of larger rival Antofagasta, thanks to a more down-to-earth valuation.

Cheaper alternative

Much like its blue-chip counterpart, the FTSE 250-listed miner announced a very strong set of interim results last month, with gross revenue rising 230% to $837m as copper output more than doubled to 118kt during the first half of 2017. The company now expects full-year production to be between 235-260kt.

With underlying profits forecast to double by the end of the year, I see Kaz Minerals as a cheaper alternative to Antofagasta trading at just 13 times forward earnings, falling to just 10 times by the end of next year.

The post 2 stocks that turned £5,000 into £10,000 in just 1 year appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

From a standing start, Sirius is suddenly sprinting. And yet the shares have plummeted 15%.  What gives?

Show me the money!

Having secured Rhinehart’s backing, Sirius now plans to accumulate the remaining cash through a placing of new shares and convertible bonds. The issue of new shares means that the company will now be working over the next two days to find buyers through a bookbuild. Having discovered what price institutional investors will be willing to buy the new stock, the company can then confirm the firm placing and offer price to the market. Sirius estimates that the new shares will be priced  between 20p-30p.  To put things in perspective, a price of 20p would be 54% lower than yesterday’s closing price of 36.75p.  This explains why the share price has behaved the way it has in response to such excellent news from the company. If you offer anything at a discount, it’s value falls accordingly. 

But what does this all mean for the humble private investor who already has a stake in the business? As CEO, Chris Fraser has long hinted, they haven’t been ignored in this process. Of the new share issue, roughly 10% (£40m) will be offered to those who already hold the shares. This will happen on 7 November unless the book build completes today, at which point the company is likely to launch the offer earlier than first thought.  

Perhaps the most interesting aspect of this offer is the fact that existing holders will be able to apply for as many new shares as they desire. This may lead some to question whether they should jettison their existing holding and buy back in at the placing price, assuming this is lower than the price they originally paid.

So, I should sell?

Not so fast. I would strongly caution against any investors dumping their shares at such a crucial time simply because there are no guarantees of being able to repurchase their existing holding (and more) once the offer goes live. The issue is likely to be heavily oversubscribed and, as those who applied for shares in Royal Mail will remember, it’s sometimes the case that you get less than you may want.  At times like this, it’s important to remember the two driving forces behind the market: fear and greed.  Attempting any kind of ‘buyback’ strategy now would be rather risky and potentially undo a lot of the dedication early investors have shown to this point.

In my opinion, any Foolish investors out there with shares in Sirius Minerals should sit back and do nothing other than toast Chris Fraser’s words: “Once we have received shareholder approval, we want to get on with the job of delivering this compelling value proposition, not only for our shareholders but also for the North Yorkshire community.”

The post Sirius Minerals plc dives on long-awaited funding news appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Sirius Minerals. 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.

One year on and a lot has changed for the mining industry. Commodity prices have stabilised, the outlook for the world economy has improved, and investors are no longer scared of the sector.

The performance of Rio Tinto (LSE: RIO) and Glencore (LSE: GLEN) shares reflect how investor sentiment towards miners has changed over the past year. Year-to-date shares in Glencore and Rio are up 117% and 26% respectively, excluding dividends. And even after these gains, I believe Rio and Glencore once again look like attractive investments.

Not for the fainthearted

Shares in Rio and Glencore may have clocked up a relatively impressive year-to-date performance but investing in these miners isn’t for the fainthearted. After recent gains both trade at relatively rich valuations and remain exposed to commodity price movements. Any slowdown in global growth will hit commodity prices, which will delay their recovery process.

Still, for the long-term investor with an optimistic outlook for the global economy they’re attractive investments.

Based on current City figures, Rio’s earnings per share are expected to fall 27% this year, the third consecutive year of earnings contraction. However, for the year ending 31 December 2017 earnings are projected to remain unchanged, marking an end to the company’s run of poor performance. Meanwhile, Glencore’s earnings per share are expected to remain unchanged this year before rebounding by 57% next year.

Of course, these figures are dependent on commodity prices. But as Rio and Glencore continue to cut costs to improve margins it should become easier for these two mining champions to meet City expectations for growth.

Worth paying for?

Some investors may be put off the shares by the companies’ lofty valuations. Based on current City figures shares in Glencore are currently trading at a forward P/E of 41.5 and Rio’s shares are trading at a forward PE of 17.4.

If you factor-in Glencore’s projected growth, the company’s valuation doesn’t look too taxing. Next year, forecasts suggest that its valuation will fall to 28.2 times earnings and an earnings growth rate of 57% indicates that the shares are trading at a PEG ratio of 0.5 – a PEG ratio of less than one implies that the shares offer growth at a reasonable price.

Rio isn’t expected to chalk up any earnings growth next year, but the world’s largest iron ore miner deserves a premium valuation. Compared to its peer BHP Billiton, it looks cheap as BHP’s shares are currently trading at a forward P/E of 30.7 for the year ending 30 June 2017.

Overall, in my opinion, both Rio and Glencore look to be attractive long-term investments that will benefit from global economic growth.

The post Why these two miners look attractive to me appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Calling in Doctor Copper

Although Rio Tinto recently earned more than 80% of its profits from producing iron ore the firm has big ideas about expanding its copper operations. In today’s news, Rio Tinto and its partners, the Government of Mongolia and Turquoise Hill Resources, have approved the next stage in the development of the world-class Oyu Tolgoi copper and gold mine in Mongolia.

In a measure of just how long it takes the world of big mining to respond to the outcomes of the supply and demand equation for natural resources, Rio Tinto’s deputy chief executive Jean-Sébastien Jacques said: “Rio Tinto’s partnership with Mongolia began over a decade ago… Today’s investment takes it to another level and will transform Oyu Tolgoi into one of the most significant copper mines globally, unlocking 80% of its value.”

According to the deputy chief, long-term copper fundamentals are strong and the proposed ramp-up in production from Oyu Tolgoi will commence just as many expect copper markets to face a structural deficit.

That’s interesting because one old market saw is that ‘Doctor Copper’ has a PhD in economics due to its apparent ability to predict turning points in the global economy. The argument goes that copper’s widespread applications in many sectors of the economy, such as in electronics, plumbing and the power industry, make demand for copper a reliable leading indicator of economic health. Some believe rising copper prices suggest strong copper demand and hence a growing global economy while declining copper prices may indicate sluggish demand and an imminent economic slowdown. 

However, the presence of a structural deficit in the copper industry suggests an imbalance such that a shortage of copper production may be driving copper prices rather than the ‘Doctor Copper’ theory that the price of copper indicates the state of things on the demand side of the equation.

Rio Tinto’s three big weaknesses

The price of copper has been sinking for five years or so in line with other commodities but it also participated in the bounceback during early 2016. However, I’m not putting any faith in Doctor Copper’s diagnosis for the economy. I reckon copper, the other commodities, and the share prices of big mining firms such as Rio Tinto could be caught in the currents of a tsunami of speculation, perhaps driven more than ever in today’s world by the masses in China.

Rio Tinto’s three big weaknesses are that:

1) The firm has almost no pricing power for the product it produces

2) Demand is cyclical

3) Costs are volatile.

That’s a poor set of circumstances on which to base any business model and leads to wilder outcomes for investors when those factors are put on steroids with an overdose of speculation.

The post Rio Tinto plc’s 3 Big Weaknesses appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

My guess is that these three names attract investors because of their perceived recovery potential, but I’m cautious about their prospects.

Blowing in the wind

The main problem with all three firms is that their operations blow in the winds of cyclicality. As such, they don’t make good buy-and-forget investments that can be tucked away and forgotten about for at least three to five years. Cyclicals like these need to be watched carefully, and timing a purchase of shares is more important than ever.

Take Barclays, for example. The firm is still struggling to recover from the after-effects of the financial crisis. Recent first-quarter results reveal what a big task the firm has winding down its inefficient and often lossmaking non-core operations and assets. The company says it shed £3bn of these undesirable risk-weighted assets in the quarter, but that leaves £51bn still to go.

The pace is slow. Yet Barclays needs to shed the deadweight of non-core assets if it’s to stand a chance of making reasonable overall progress. An increased non-core loss of £815m pulled down an 18% increase in core profit in the quarter of £1,608m to produce an overall profit of £793m for the company. That was down 25% on what Barclays achieved in the equivalent period a year ago — ouch!

I reckon Barclays could get to the point where it has disposed of most of its poor quality operations and straightened out its business only to be hit by another financial crisis down the road. Such roller coaster investing seems too risky to me when there are so many other better potential investments to choose from on the London stock market.

Fickle commodity prices

Meanwhile, Rio Tinto’s shares have been shooting up this year in line with the recovery of commodity prices such as iron ore’s. The way the firm’s share price and profits plunged before that demonstrates how little control the directors have over the company’s profitability. Rio Tinto’s fortunes depend on the fickle movements of commodity prices but speculators and traders exaggerate such movements.

I think that might be why the bounce up in commodity prices, and Rio Tinto’s share price, has been so strong this year — speculation drove prices lower than the balance of supply and demand required, and speculation and short covering drove prices up again too quickly. Royal Dutch Shell suffers from similar forces with its close dependency on the price of oil.

It could transpire that commodity prices continue their recovery allowing Rio Tinto and Shell to generate more cash flow and profits to cover their dividend payments. Equally likely is that commodity prices could slide again and the investment potential of both firms seems uncertain. I think recent price rises have heightened the risk for investors in Rio Tinto and Shell, and those investing now could see a lacklustre investment outcome over a three to five-year holding period.

I don’t think I’m nuts being out of these cyclical firms now because better, more predictable businesses exist on the stock market.

The post Am I nuts being out of Barclays PLC, Rio Tinto plc and Royal Dutch Shell Plc now? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended Barclays, Rio Tinto, and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.