Barclays on Iron Ore: Buy BHP; Sell Vale; Hold Rio Tinto (BHP; RIO; VALE)

From Barron's Emerging Markets Daily:

Barclays: Buy BHP Billiton, Hold Rio Tinto, Sell Vale, All Because Of Iron Ore

Iron Ore is onerous, according to Barclays.

Barclays has a Buy rating on BHP Billiton (BHP), partly because the mining company is more diversified. Only half of its profit comes from iron ore. A 10% drop in iron ore price reduces BHP Billiton’s 2015 earnings by only 9.4%, estimates the broker.

We should expect a potential 20% upside from BHP Billiton this year, says Barclays: We were surprised at the relatively rare underperformance of the BHP Billiton share price last year. We believe it was mainly due to concern over a perceived capex trap and uncertainty in the onshore US petroleum business.

We see 2014 as a positive year for BHP Billiton.

Barclays does not like Rio Tinto (RIO) (Neutral) as much. 80% of Rio Tinto’s profit comes from iron ore and the broker estimates that a 10% drop in iron ore price reduces Rio Tinto’s earnings by 15%.
Investors seem to echo their lack of enthusiasm:

Shares trade on a spot PER for instance of only 7.9x 2014E earnings, although on our $110/t iron ore price it rises to a less anomalous 10.2x...

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