Rio Stock To $10?

How would you react if you held Rio Tinto (NYSE: RIO) and its value fell by 80% or more in the upcoming months? Although this might seem extreme, such an occurrence has happened before and could repeat itself. In the last six months, the stock has so far lost over 22% of its value – including the recent 8% drop after Trump’s tariff announcements. And when one considers past data on how the stock performs during an economic downturn, a correction to less than $10 from near $55 at present may not be too far-fetched.

Interestingly, the recent performance of the stock is actually counterintuitive to its financial results. ​In 2024, Rio Tinto demonstrated strong operational performance, achieving over 1% production growth and a 3% increase in sales volumes on a copper-equivalent basis. This contributed to earnings of $10.9 billion and a return on capital employed of 18%. Despite a 10% decline in iron ore prices, leading to lower divisional earnings, the company experienced significant growth in other sectors: the aluminum business saw a 61% rise, and the copper business experienced a 75% increase. ​However, investors are spooked by macro fears stemming from the recent imposition of tariffs by U.S. President Donald Trump which has heightened concerns about a global recession. Major trading partners, including China, have responded with retaliatory measures, impacting global markets. Rio Tinto’s profitability is closely tied to iron ore prices, which have been under pressure due to weakened demand from China.

Here’s the key point: The key takeaway is that during a downturn, RIO stock might incur substantial losses. The stock lost 38% during the inflation shock and 42% during the Covid crisis. But the biggest of them all is that during the financial crisis of 2009, the stock lost almost 90% from its peak. That’s not a mistake. Markets can be ridiculous in the face of macro fears. Is there any similarity between the company’s current fundamental position and that of the company during the financial crisis?

In March 2009, RIO reported full year 2008 record earnings of $10.3 billion, and the stock was trading at about 38 times the earnings. RIO’s earnings in the last twelve months was $11.55 billion – indicating a yield of 12% on a market cap of $95 billion. So what? In spite of the lower valuation multiple, could the stock witness a similar meltdown? Maybe not as severe – with over a decade and a half of business and investor confidence, the company would be in a much better position compared to 2009. However, concerns would remain. Naturally, individual stocks are generally more volatile than diversified portfolios. Therefore, if you are looking for growth with reduced volatility, you might consider the High-Quality portfolio, which has outperformed the S&P 500 and generated returns of over 75% since its inception.

Here are a few key pointers on how resilient is RIO stock during an economic downturn: