Over the previous six months, the Rio Tinto (LSE:RIO) share price has dropped 11%. Over a yr, it’s down 3%. Notably prior to now couple of months, the FTSE 100 inventory has struggled to rally, regardless of the index as a complete performing positively. Regardless of this, I’m considering of including extra Rio Tinto shares to my portfolio. Right here’s why.

The yr thus far

I first purchased Rio Tinto shares close to the start of the yr, as I believed that metals and different commodities might outperform. This was true for a lot of the early a part of the yr. In consequence, the inventory did nicely because it mines for merchandise resembling iron ore, copper and lithium. The extra in demand these merchandise are, the upper the price that may be charged.

This finally helps revenues for Rio Tinto to rise and has a knock-on affect to the share price. Nevertheless, there have been some points as we got here into early summer time.

Concern across the lack of restoration in China brought on some buyers to fret concerning the implications for Rio Tinto. In spite of everything, China’s the main shopper of key metals because of the building sector.

One other drawback arose in July when the Q2 report confirmed that iron ore manufacturing fell by 2% versus the identical interval a yr again. This was blamed on provide points that may be rectified.

Why I’m nonetheless optimistic

The inventory’s now again at ranges seen in Q1, I believe I’m going to purchase the dip right here. A part of the explanation pertains to the valuation. The price-to-earnings ratio has fallen under 10, which is my truthful worth benchmark. It sits at 8.85, which flags up to me a possible undervaluation.

The transfer decrease within the share price has additionally acted to spice up the dividend yield. It’s presently at 6.78%, nicely above the FTSE 100 common yield. With my earnings hat on, this makes it engaging to purchase.

Additional, my view on key commodities hasn’t modified. Once we speak concerning the {hardware} (like batteries) that goes into creating synthetic intelligence (AI) and electrical automobiles (EVs), it wants the likes of copper, lithium and extra. The industrial makes use of of those merchandise is giant and solely going to develop. Due to this fact, I believe Rio Tinto’s nicely positioned to make the most of this.

The long-term view

In fact, I should be affected person right here. The danger is that continued poor sentiment weighs over the inventory for the remainder of the yr. However that’s why I can sit again and be pleased with the dividend earnings within the meantime. In the long term, I count on the share price to maneuver again increased to a fairer worth, buoyed by demand from China, AI and EVs.