Own Rio Tinto (ASX:RIO) shares? Jefferies says they’ll outperform ‘in the near term’

Own Rio Tinto shares? You might be interested in what Jefferies just had to say about the company and the price of iron ore.

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Key Points

  • Rio Tinto shares are now trading at 3-month highs
  • The price of iron ore made a reversal in late 2021 and is also back above its 3-month highs
  • Analysts at Jefferies reckon the Rio Tinto share price and iron ore can continue outperforming in the short-term

Shares in Rio Tinto Limited (ASX: RIO) have reclaimed territory after bottoming in November and are now trading at 3-month highs.

At market close on Thursday, shares in the mining and resources giant are fetching for $111.70 apiece after spiking 4.13% on the day.

It was a fairly lacklustre year for Rio in 2021, with shares walking sideways the majority of the year – but not without the fair share of volatility.

Then in August, after peaking at a record high of $134.40, the floor fell out of iron ore markets and the impulse saw Rio get chewed up all the way down to its 52-week low of $87.51.

Now that shares have regained momentum, analysts at investment bank Jefferies have chimed in on the investment debate.

Near-term bullish, but retains ‘hold’ rating

The firm notes that the support underneath Rio’s share price is largely assigned to renewed strength in the iron ore markets that’s been in situ since November last year.

After racing down from its peak, the price of iron ore itself bottomed in late November and has since made a reversal back above its 3-month highs.

It is now trading at US$126.50/tonne, having shot up 50% from its low in 2021.

Aside from that, the broker reckons that Rio could be the beneficiary of rival BHP Group Ltd (ASX: BHP)’s planned exit from the Financial Times Stock Exchange (FTSE).

Each of these short-term catalysts could bode in well for the Rio share price, Jefferies says, but not necessarily over an extended horizon.

“We prefer pure-play copper and aluminium producers over iron-ore miners” Jefferies notes, showing its current philosophy on ASX resources shares.

“But we do believe iron ore and Rio can continue to outperform in the near term”.

Even still, it rates the stock a ‘hold’ and values the company at $100 per share.

What about other brokers?

Goldman Sachs is bullish on the company and has it as a buy on a $125.60 valuation, whereas Morgan Stanley tips Rio to outperform as well.

Meanwhile, Macquarie and Credit Suisse also reckon that Rio is set to outperform this year on the back of a more buoyant iron ore market.

In fact, in a list of analysts provided by Bloomberg Intelligence, the sentiment appears to be fairly evenly split for the ratio of buy to holds.

For instance, 47.1% have Rio as a buy whereas 41.2% have it as a hold according to that list. Only two firms recommend Rio sell their Shares.

There is a 132% spread in price targets in this analyst group with Evans and Partners and Macquarie Group most constructive at $146 and $133 respectively.

In the last 12 months, Rio Tinto shares have slipped more than 7% in the red. However, it is up almost 17% in the past month after rallying 12% since January 1.

Should you invest $1,000 in Rio Tinto right now?

Before you consider Rio Tinto, you'll want to hear this.

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The author has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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