Better ASX rare earths buy: Iluka or Lynas shares?

This top broker is bullish on just one of the ASX 200 rare earths duo.

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Key points

  • There are plenty of things Lynas Rare Earths and Iluka Resources have in common
  • Most obviously, they're both ASX 200 rare earths producers
  • But top broker Goldman Sachs only tips one a buy right now

In many ways, there are more similarities between ASX rare earths shares Lynas Rare Earths Ltd (ASX: LYC) and Iluka Resources Limited (ASX: ILU) than differences.

But if an investor was gearing up to snap up stock in just one of the critical minerals producers, which would be the better buy?

Top broker Goldman Sachs has delved into the pair and come up with a clear favourite. Let's take a look.

Lynas shares compared to Iluka stock

First, though, let's compare the ASX rare earths duo.

The companies are both mining the critical minerals in Australia.

They're also both at home on the S&P/ASX 200 Index (ASX: XJO) – Lynas has a market capitalisation of $7.15 billion, while that of Iluka is around $4.98 billion.

Lynas boasts its Mt Weld mine and operates the largest single rare earths processing plant outside of China in Malaysia. It's also expecting feed-on at its Kalgoorlie Rare Earths Processing Facility to kick off soon.

Iluka, on the other hand, holds the world's largest zircon mine in South Australia, as well as the Cataby mining operating and a processing hub in Western Australia. It's also developing a number of resources and building a fully integrated rare earths refinery at Eneabba, 300km north of Perth.

Looking at their share prices, Lynas has notably underperformed Iluka so far this year. The former stock has traded flat year to date while the latter has lifted 24%.

Over the last five years, however, Lynas shares have tripled in value while those of Iluka have 'only' doubled.

So, with all that considered, let's take a look at which ASX 200 rare earths share Goldman Sachs prefers and why.

This ASX rare earths share is the better buy: Broker

Considering the pair, the top broker has a clear favourite – Iluka. It rates the stock a buy and tips it to rise 9.5% to $12.80. The broker believed the stock was undervalued and offered attractive growth potential earlier this year.

Lynas shares, on the other hand, have been slapped with a neutral rating and a $6.90 price target – a potential 9.2% downside. The broker upped its price target on the stock last month after the Malaysian government extended the cut-off date by which the company must stop importing lanthanide concentrate into the country.  

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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 Scott Phillips.

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