The Anglo American share price is down 10% today! Should I buy the dip?

Businessman looking at a red arrow crashing through the floor

The FTSE 100 is seeing a sell-off today due to multiple reasons. It currently trades just above 7,000 points, down around 2.5% on the day. As the worst performer within the index, the Anglo American (LSE:AAL) share price is down 10%. This means the price is just above 2,850p, a level not seen since the mini-crash a month ago. Is this dip in the shares worth buying?

Reasons for the fall

It’s worth noting that the slump in the Anglo American share price has been felt across the mining sector. Other companies that have seen their share prices falling today include Rio Tinto, Antofagasta and BHP Group. So it’s clear that the sector is having a bad day all round.

One reason that can be seen for this is the fall in the price of key commodities. For example, oil is down 3% on the day. On the metals front, copper is also down 3%, with platinum and palladium also down at least 2%. 

Anglo American is the world’s largest producer of platinum but also has exposure to other metals mentioned above, including copper. So the fall in prices is a negative knock-on impact for the company. This applies for the rest of the sector in general.

Another reason for the fall in the share price is due to souring risk sentiment. The situation in Afghanistan is well publicised and isn’t a positive situation for any side involved. Added into the mix is the rise of Covid-19 cases around the world, leading to fresh lockdowns in places such as New Zealand.

For the Anglo American share price, it isn’t seen as a defensive place to be during times of distress. Rather, investors tend to flock to other sectors such as utilities during times of uncertainty.

Good value in the share price?

On the face of it, the shares haven’t really fallen to a significant historical low. The move lower today only puts us back to levels seen a month ago. The broader trend over a longer period has been higher, with the share price up 69% over the past year.

At a relative level, the P/E ratio at the start of the week sat at just over 27. For me, an average P/E ratio is around 15. In comparison, Rio Tinto has a P/E ratio of 12.77 and BHP Group currently sits at 18.25. So from this angle, I can probably find better buys if I want to get exposure to this sector.

Personally, I don’t think that this blip in the Anglo American share price is anything to be overly concerned about. The most recent results showed that the company is performing well. It also showed very strong EBITDA profit margins, including a 66% margin on copper.

Although I don’t see anything fundamentally wrong with Anglo American, I think that on a relative level I can find better value in a company like Rio Tinto. Therefore, I won’t be buying the dip and investing at the moment.

The post The Anglo American share price is down 10% today! Should I buy the dip? appeared first on The Motley Fool UK.

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jonathansmith1 and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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