As a veteran value investor, I’m always looking out for cheap shares. Indeed, I often go mining for deep value in the blue-chip FTSE 100 index. What I look for are ‘boring’ companies — those with easily understood business models. Also, I prefer stocks trading on low multiples of earnings and paying market-leading cash dividends. Today, my search threw up three cheap shares that combine both ‘boring’ and ‘mining’. I don’t own these three stocks at present, but would buy them today for their current income and potential for future growth.
Cheap shares: 1) Evraz
The first of my cheap shares is Evraz (LSE: EVR). Founded in Moscow in 1992, Evraz is a global steelmaker and miner with operations in Russia, Ukraine, and North America. Its main products include steel, iron ore, coal, and vanadium. The group’s biggest shareholder is billionaire Roman Abramovich, owner of Chelsea FC. At the current share price of 326.6p, Evraz is valued at £4.6bn. Its shares trade on a price-to-earnings ratio of 4.1 and an earnings yield of 24.6%. Furthermore, its dividend yield of 26% is the FTSE 100’s highest by far. But this sky-high yield is extremely risky and most likely unsustainable (dividends are not guaranteed, so can be cut at any time). Also, with tensions reaching fever pitch between Russia and Ukraine, Evraz shares collapsed to a low of 232.64p on Friday, 11 February, before rebounding. Thus, shares in this Russia-based business are extremely risky and likely to remain highly volatile for some time. I’d buy as a speculative punt, not a core holding.
Mining shares: 2) Polymetal International
The second of my cheap shares is Polymetal International (LSE: POLY). This is an unusual business: an Anglo-Russian miner of gold and silver, registered in Jersey and with headquarters in Cyprus. At its current share price of 1,124.5p, Polymetal is valued at £5.3bn. However, these shares recently slumped towards the bottom of their 52-week range of 1,039.71p (on 28 January 2022) and 1,737p (on 3 June 2021). After recent falls, this mining stock may be too cheap. Its shares trade on a multiple of just 6.5 times earnings and an earnings yield of 15.4%. Also, at 8.6% a year, Polymetal’s dividend is among the FTSE 100’s highest. Polymetal stock is down 35% since early June 2021, partly because gold and silver prices declined last year. If precious-metals prices fall again in 2022, this would spell bad news for Polymetal. Despite these risks, I’d still buy it today.
Boring shares: 3) Rio Tinto
The third of my cheap shares is global mining giant Rio Tinto (LSE: RIO). Rio Tinto is a behemoth, digging up iron ore, aluminium, copper, and lithium around the world. With 60 mining projects across 35 countries, this Anglo-Australian business generates huge cash flows, profits, and earnings. At the current share price of 5,599p, Rio Tinto is valued at £93.3bn, making it a FTSE 100 super-heavyweight. Today, Rio shares trade on a price-to-earnings ratio of 6.6 and an earnings yield of 15.2%. Also, its dividend yield is 8.8% a year — around 2.2 times the FTSE 100’s cash yield. As an income-seeking value investor, I regard Rio Tinto as a dividend dynamo trading on rather tempting fundamentals. However, my experience of investing in mining stocks has taught me that they can often be volatile — even with mega-cap firms like Rio. Nevertheless, I’d buy Rio today on hopes of another commodities super-cycle!
Cliffdarcy 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.
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