The Basic Materials group has not had a good start to 2024, as a sector. The S&P 500 Materials Sector SPDR (XLB) - the most widely used benchmark for these stocks - is down 3.7% this month, even as an ongoing rally in tech has pushed the broader market to new record highs. 

But while the materials sector is lagging behind, there's one specific stock in the group that's still an analyst favorite - and with bullish forecasts for the year ahead, this could be a standout pick worth scooping up at a discount right now.

About Rio Tinto Stock

Founded over 150 years ago in 1873, Rio Tinto (RIO) is the world's second-largest metals and mining corporation. Rio Tinto focuses on mining and processing minerals and metals essential for modern life, including iron ore, aluminum, copper, diamonds, and other minerals. It currently commands a market cap of $88.5 billion.

Rio Tinto stock has recovered from the lows set during the second half of 2023, but is still down 11% over the past year.

Rio Tinto stock is fairly valued at current levels. The shares are valued at 9.7 times forward earnings, well below the sector median of 16.02.  Plus, the stock's forward dividend yield of 5% outpaces the materials sector median.

Operational Strength 

Production details for the most recent quarter reflect solid operational activities at Rio Tinto. Iron ore shipments were up by 1% from the previous year to 83.9 Mt. Additionally, production increased for bauxite (+2% YoY), aluminum (+9% YoY) and mined copper (+5% YoY).

Titanium dioxide slag production was down 20% from the previous year, and so was the production of iron ore pellets and concentrate (-14% YoY). However, the latter clocked sequential growth of 16%.

Rio Tinto also said that it will manufacture and market recycled aluminum products with Giampaolo Group as its joint-venture partner. The recycled aluminum market is expected to grow at a rapid rate in the upcoming years, from $48.2 million in 2022 to $165.5 million by the end of 2031. 

And Giampaolo is one of North America's largest fully integrated metal management businesses. Under this agreement, Rio will own a 51% stake in Giampaolo subsidiary Matalco for $700 million, and gain access to its six facilities in the U.S. plus one in Canada, which have a combined production capacity of about 900,000 tonnes of recycled aluminum per annum.

Rio ended the quarter with a cash balance of $10.5 billion, and realized operating cash flows of $12.63 billion in the past 12 months. This compares favorably to its much lower and modest net interest expenses of $596 million.

RIO's Strategic Advantages

One key advantage for Rio is that it has mining hubs in most of the mineral-rich countries of the world. For instance, it produces copper from Escondida, the largest copper mine in the world. The mine’s annual output is 1.2 Mt copper, making up 5.5% of the world's total production. The mine is operated by a joint venture between BHP (57.5%), Rio Tinto (30%), JECO Corp (10%), and JECO 2 (2.5%).

And when it comes to iron ore, RIO is present in the prolific Pilbara region in Western Australia. The Pilbara region is responsible for about half of the Australian iron ore production, and Rio's Pilbara operations comprise four port terminals, 17 iron ore mines, and independent rail work.

In Mongolia, Rio owns 66% of the You Tolgoi, mine which has one of the largest deposits of copper and gold globally. Finally, through a joint venture, Rio owns 12% of the largest bauxite mine in Brazil, the Mineracao Rio do Norte (MRN), and holds bauxite assets in Guinea and Australia.

What Do Analysts Expect for RIO Stock?

Analysts remain quite upbeat about Rio Tinto stock, with a consensus rating of “Strong Buy” and a mean target price of $93. This denotes an upside potential of roughly 31.5% from current levels. Out of 12 analysts covering the stock, 9 have a “Strong Buy” rating and 3 have a “Hold” rating.