On Monday the Rio Tinto Limited (ASX: RIO) share price continued its impressive run thanks to another rise in iron ore prices.
At one stage the mining giant's shares rose over 2% to hit a new 52-week high of $103.43.
Is it too late to invest?
According to one leading broker it isn't too late to snap up Rio Tinto's shares.
A note out of Goldman Sachs this morning reveals that its analysts have upgraded the miner's shares to a buy rating and lifted the price target on them by 15% to $108.40.
This price target implies potential upside of 5% from its last close price excluding dividends. But if you include dividends this increases to around 10%.
Why is Goldman Sachs bullish on Rio Tinto?
Goldman upgraded Rio Tinto's shares after its commodities team updated their view on seaborne iron ore due to stronger than expected Chinese steel demand and lower than forecast Brazilian iron ore supply.
The broker now forecasts 30-40Mt market deficits in 2019 and 2020, leading to a 15% increase in its benchmark iron ore price estimates through to 2021.
Goldman expects an average price of US$91 a tonne in 2019, US$80 a tonne in 2020, and then US$72 a tonne in 2021.
It prefers Rio Tinto over its peers BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) due to its strong free cash flow, balance sheet, and shareholder returns.
In respect to the latter, the broker has "forecast a further US$9.3bn of cash returns in 2019 which includes a US$2.5bn announced buyback, the total equates to an effective dividend yield of c. 7-8%."
Further, the broker expects "the share buyback and the portfolio enhancement strategy to result in a superior multiple/valuation vs. most key peers over time."
Incidentally, Goldman has a neutral rating and $38.90 price target on BHP's shares and a neutral rating and $8.80 price target on Fortescue's shares.
