Bloomberg

(Bloomberg) -- London’s best blue-chip stock is one most analysts spent this year telling investors to dump.

Anglo American Plc has more than doubled in value in 2016, outpacing all other FTSE-100 companies. Since touching a record low on Jan. 26, over half the recommendations on the diamond and iron-ore miner have been to sell.

Of the 30 compiled by Bloomberg, only two are to buy, while the business has the lowest consensus investment rating of any on the benchmark index. 

Anglo’s not alone. European mining shares are up 25 percent, beating all other industries in the Stoxx Europe 600 Index, while analysts rate them the worst.

“This rally wrong footed almost everybody,” said Jeremy Wrathall, head of global natural resources in London at Investec Plc. The bank maintains a sell rating on Anglo, after cutting its recommendation in January, as well as Glencore Plc and Antofagasta Plc.

To be fair, this year’s market-beating equities were last year’s worst. Anglo American saw three-quarters of its value evaporate in 2015, more than any other FTSE-100 stock. It’s only recouped about half of those losses this year.

Rival mine operator Glencore, the second-worst investment on the benchmark London index last year, is the second best in 2016.

Miners Rerouted

That’s largely because raw materials rebounded from a rout. The Bloomberg Commodity Spot Index is up 12 percent this year, after an 18 percent drop in 2015, on signs of recovering demand in China, the biggest consumer of natural resources.

It also follows efforts by miners such as Anglo and Glencore to cut debt and sell weaker businesses. Anglo plans to offload more than half its mines and quit iron ore and coal to focus on its best assets -- diamonds, platinum and copper. Its first-quarter output released Thursday was more encouraging than results last year, Sanford C Bernstein said in a note.

“If it can get from where it is today to where it wants to be within the next five years, I think Anglo is really interesting,” said Clive Burstow, who helps manage about $35 billion at Baring Asset Management Ltd. in London. and holds Glencore, Rio and BHP Billiton Plc but not Anglo American shares. “Now, they need to start delivering.”

Stretching Valuations

Even as the miners’ endeavors have been welcomed, analysts’ ratings aren’t yet rising.

Citigroup Inc. cut its outlook for metals and mining stocks to bearish from neutral this week, saying that the first-quarter rally left valuations stretched in the short term. Barclays Plc has said the recent upturn in Chinese data is ultimately unsustainable.

While companies like Anglo and Glencore have been the stars of 2016, their stretched balance sheets leave them vulnerable, according to Wrathall. Investec recommends investors sell both companies, while buying larger rival Rio Tinto Group.

“Things have gone a bit too far on valuations so far,” Wrathall said. “It’s still safe to stick with the stalwarts rather then go for the highly leveraged stocks, even though they are the best performers recently.”

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net. To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Tony Barrett, Andre Janse van Vuuren

©2016 Bloomberg L.P.

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