What would your reaction be if Rio Tinto (NYSE: RIO) lost 80% or more of its value in the coming months? While this might sound extreme, such a decline has occurred before and could potentially happen again. Over the past six months, the stock has already dropped by more than 22%—including an 8% dip following recent tariff announcements by President Trump. Given how the stock has historically responded to economic downturns, a fall from its current price near $55 to under $10 isn’t out of the question.
Interestingly, the recent decline in the stock price contrasts with the company’s solid financial performance. In 2024, Rio Tinto reported robust operational results, with over 1% growth in production and a 3% rise in sales volumes on a copper-equivalent basis. This led to earnings of $10.9 billion and a return on capital employed of 18%. Despite a 10% drop in iron ore prices—which weighed on earnings from that segment—the company saw notable gains elsewhere: aluminum profits rose by 61%, and copper earnings increased by 75%. Nevertheless, investors are worried due to broader macroeconomic fears triggered by Trump’s new tariffs, which have sparked global recession concerns. Key trading partners like China have responded with countermeasures, rattling markets. Rio Tinto’s profitability is especially vulnerable to fluctuations in iron ore prices, which are under pressure due to decreased demand from China.
Here’s the key point: The takeaway is that RIO stock could suffer significant losses during economic downturns. It declined 38% during the inflation shock and fell 42% during the Covid crisis. But the most severe drop occurred during the 2009 financial crisis, when the stock lost nearly 90% of its value from the peak. That’s not a typo. Markets can react irrationally when faced with macro uncertainty. So, does Rio Tinto’s current financial position resemble its state during that crisis?
In March 2009, RIO reported record earnings of $10.3 billion for 2008, while the stock traded at about 38 times earnings. Over the last twelve months, RIO posted earnings of $11.55 billion—implying a 12% yield on a $95 billion market cap. Does that matter? Despite a lower valuation multiple now, could the stock still collapse in similar fashion? Perhaps not as dramatically—over 15 years of business evolution and increased investor confidence suggest the company is in a stronger position than it was in 2009. Still, concerns persist. Individual stocks are generally more volatile than diversified portfolios. For those seeking growth with lower volatility, the High-Quality portfolio may be worth considering. It has outpaced the S&P 500 and delivered over 75% returns since inception.
Here are a few key pointers on how resilient RIO stock has been during economic downturns:
Inflation Shock (2022)
- RIO stock fell 38.1% from a high of $82.68 on 1 April 2022 to $51.22 on 26 September 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $80.40 on 26 January 2023 and currently trades at around $55
Covid Pandemic (2020)
- RIO stock fell 41.7% from a high of $60.67 on 17 January 2020 to $35.35 on 20 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
- However, the stock fully recovered to its pre-crisis peak by 17 July 2020
Global Financial Crisis (2008)
- RIO stock fell 89.1% from a high of $138.73 on 16 May 2008 to $15.18 on 4 December 2008, vs. a peak-to-trough decline of 56.8% for the S&P 500
- The stock is yet to recover to its pre-Crisis high
With slowing growth and broader uncertainty looming, ask yourself this: Would you keep holding RIO stock, or sell if it dropped to $40, $20, or even lower? Sticking with a declining stock is always difficult. Trefis works with Empirical Asset Management, a Boston-based wealth manager, whose asset allocation strategies delivered gains during 2008-09 when the S&P fell over 40%. Empirical includes the Trefis HQ Portfolio in its approach, aiming to offer stronger returns and lower risk compared to benchmark indices, as reflected in the HQ Portfolio performance metrics.
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