Down 15% since early March, is the Rio Tinto share price an ASX mining buy?

Attention ‘buy the dip’ investors…

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Key points

  • The Rio Tinto share price is down 15% since early March 
  • Two brokers are recommending this ASX resources blue chip as a buy 
  • One broker says there is 25% upside on the table, not to mention a dividend yield of 11%-12%

On 3 March, the Rio Tinto Limited (ASX: RIO) share price finished the trading day at $127.85. At Friday’s close, it was trading at $108.35. That’s a 15.2% drop compared to just a 0.08% fall for the S&P/ASX 200 Index (ASX: XJO) over the same time frame. This begs the question, is this an opportunity to buy the dip?

Buying the dip means buying a share after it has suffered a price decline. It’s always best to do so when the dip has nothing to do with the stock itself but is a result of general market fluctuations caused by broader macro-economic issues, like we’re seeing now.

It’s rising interest rates and inflation that are causing havoc with share markets globally. Investors are still getting their heads around these issues, as they haven’t seen them in play for many years, and that’s one reason why we’re seeing a lot of volatility in the markets right now.

Why buy the dip?

Investors with a buy the dip strategy love volatility. It gives them a chance to pick up desirable stocks like the big ASX blue chips for short or long-term capital gains and dividends.

It’s like going into a store and seeing your favourite item on sale. You know it’s high quality, and the only reason it’s on sale is that everything else is, too. So, why not take advantage of it?

What do the experts think of the Rio Tinto share price?

There are two notable brokers who are recommending Rio Tinto as a buy right now.

Goldman Sachs is bullish with a 12-month price target of $135.10 on Rio Tinto shares. That’s a potential 25% upside on today’s price.

Goldman reckons Rio’s exposure to many commodities commanding high prices will lead to material extra cash flow in the near term.

Goldman also likes the look of a bunch of growth projects currently underway. The broker reckons they’ll boost production — and hence earnings — soon.

Rio Tinto has been a big dividend payer in recent times, and Goldman expects this to continue. The broker is forecasting a US$9.30 per share dividend in FY22 and a US$8.80 per share dividend in FY23.

Taking the exchange rate and today’s share price into account, we’re talking dividend yields of between 11% and 12% for Rio Tinto investors.

Macquarie is the other broker advocating Rio. Macquarie says it is overweight on ASX resources shares and defensive shares in its strategy portfolio.

One reason for this is high commodity prices. Another is the broker’s belief that China will introduce new stimulus to restart its economy.

Rio Tinto is among a select group of ASX resources shares that Macquarie believes are well placed today. The others are South32 Ltd (ASX: S32) and BHP Group Ltd (ASX: BHP).

Macquarie notes that all three ASX shares have high current earnings. There’s also potential for extra earnings per share (EPS) in FY23 if spot commodity prices remain strong or go higher.

Motley Fool contributor Bronwyn Allen has positions in BHP Billiton Limited and Macquarie Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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