The BHP Group Ltd (ASX: BHP) share price has been out of form in recent months following weakness in the iron ore price.
This means the mining giant's shares are now down 10% since the start of the year. This compares to a year to date gain of 23% in August.
Is the BHP share price in the buy zone?
One leading broker that sees a lot of value in its shares at the current level is Morgans.
According to a note this week, the broker has upgraded the Big Australian's shares to an add rating with an improved price target of $46.05.
Based on the current BHP share price of $38.57, this implies potential upside of just over 19% for investors.
In addition, the broker is forecasting a ~$3.96 per share fully franked dividend in FY 2022. If we include this in the equation, the total potential return stretches to almost 30%.
What did the broker say?
While the broker still has concerns about the iron ore market, it appears to believe the sell down of the company's shares has been overdone.
Morgans commented: "Our cautious view on iron ore remains, but the relative value on offer in BHP has grown as: 1) BHP's share price has fallen (now implying a US$61/t iron ore price), 2) the value of the petroleum demerger has grown with WPL's share price outperformance (the guided 52/48 WPL/BHP merger split suggests the value attributed to BHP has grown US$3.8bn), and 3) BHP's robust dividend profile of +10% at the current share price."
"With these factors in mind, and BHP now trading at a sizable discount to our target price, we upgrade our rating to Add (from Hold)," it concluded.
All in all, this could make the mining giant one to consider if you're looking to invest in the resources sector.
