Why we love RIO today..
September 3rd, 2009 by Bryden Elssmann
Closing Data
| Current | Change | % | |
|---|---|---|---|
| Dow Jones | 9280.67 | -29.93 | -0.3% |
| NASDAQ | 1967.07 | -1.82 | -0.1% |
| S P 500 | 994.75 | -3.29 | -0.3% |
| FTSE 100 | 4817.55 | -2.15 | -0.0% |
| Nikkei 225 | 10280.46 | -249.6 | -2.4% |
| ASX 200 | 4,438 | -76.4 | -1.7% |
| COMEX Gold - Dec 09 | 978.5 | 22 | 2.3% |
| COMEX Silver - Sep 09 | 15.34 | 0.305 | 2.0% |
| COMEX Copper - Sep 09 | 280.25 | 0.6 | 0.2% |
| WTI Spot | 68.05 | 0 | 0.0% |
| AUD-USD | 0.8345 | 0.0084 | 1.0% |
| Aluminium | 1792.5 | -38 | -2.1% |
| Copper | 6080 | -160.5 | -2.6% |
| Lead | 2060 | -12 | -0.6% |
| Nickel | 17900 | -630 | -3.4% |
| Tin | 14050 | -100 | -0.7% |
| Zinc | 1794.5 | -25.5 | -1.4% |
A disappointing employment report weighed on consumer stocks, while declines for JPMorgan and several other large financials dragged the US market lower for a second straight session.
Overall, the market closed mildly lower, with the Dow off 29.93 points, or 0.32% at 9280.67. The S&P 500 fell 3.28 or 0.33% to 994.76.
The recent fall in equities has seen a flight to quality with gold rallying $US22 an ounce overnight.
In company news, Suncorp shares closed 1.29% lower at $7.65 yesterday. Last night a report from Credit Suisse said that Australia's "big four" banks could buy Suncorp’s underperforming banking business. The report said that the banks are cashed up and could be ready to buy the regional lender and general insurer’s bank business because the risks are now quantifiable. The report went on to suggest the banks will give back $16 billion of excess capital to shareholders during this financial year. Suncorp net profits have been declining for the past 2 financial years after a strong 2007 result.
The local share market is expected to open in the red after U.S. markets posted mild losses overnight. Metal prices improved overnight which could support local miners.
Why we love RIO today...
RIO Tinto is currently trading at $56.10
Rio Tinto (RIO) is a leading international mining group, and poised to take advantage of the commodity downturn. RIO has a good portfolio of long life assets, and a track record of delivering. The company is well positioned for continued Asian Expansion. The commodity slump and economic downturn has obviously brought significant pressure on the share price. Most analysts have a 12 month price target of at least $62. Revenue falls in line with commodity prices. RIO’s competitors are closing mines and some are going into administration. The company is well capitalised and positioned to take advantage of an upswing in the commodity market and increase in global demand.
Covered Call Strategy
Because of the volatility in the stock market, and in RIO more importantly, the returns from RIO are the highest they have been in some time. The potential to be exercised is also increased if momentum continues, thereby locking in the profit from call option premium.
RIO currently sits in an upward trending channel, as you can see from the chart below. The stock should find support at current levels, and if the market pulls back further it may find support around the $54.50 mark. The premium that can be received for an aggressive call option will protect the trade all the way to $54.60 per share.
RISKS
The obvious risk associated with the strategy is that the share price falls past the point of protection that the sold call option provides.
Markets have been wild as you are all aware, but barring any change in the fundamentals of the company, RIO is a company we are happy holding for the long term and can continue to sell call options over in the future.
Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.
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