We are maintaining a Hold recommendation on Anglo American (AAUK). The company is benefiting from strong demand for commodities around the globe and increase production. However, risks to global economic growth remain, and the strength of the South African rand could have a significant impact on future earnings.
The fundamental support for commodity prices is strong GDP growth worldwide, in particular the ongoing industrialization of China, Russia, and India. While the pace of growth of countries such as China will probably slow in the future compared with the last several years, it will still be well above that of the average growth rate of industrialized countries. Management is confident that commodity prices will remain strong this year and ruled out a slowdown in demand from China.
The combination of exchange rate unpredictability and acquisition uncertainty will make it difficult to forecast earnings. As such, it would increase the company's risk premium, and hence reduce the amount investors are willing to pay for its shares. M&A is a double edged sword for Anglo American: it is good for the industry, but two potential deals -- BHP Billiton Ltd.'s (BHP) bid for Rio Tinto PLC (RTP) and Companhia Vale do Rio Doce's (RIO) with Xstrata PLC -- would create a new class of miners far larger than Anglo American.
Read the full analyst report on AAUK
Read the full analyst report on BHP
Read the full analyst report on RTP
Read the full analyst report on RIO
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.