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Why this top broker just upgraded Rio Tinto shares

Rio Tinto earns the bulk of its revenue mining iron ore.

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Bernd Struben
Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel.
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Rio Tinto Ltd (ASX: RIO) shares are up 2% in afternoon trade on Thursday.

Shares in the S&P/ASX 200 Index (ASX: XJO) iron ore miner closed yesterday trading for $113.39. At time of writing shares are changing hands for $115.61.

For some context, the ASX 200 is up 0.5% at this same time. And in a better apple to apples comparison, the S&P/ASX 200 Resource Index (ASX: XJR) is up 1.1%.

That's today's price action for you.

Now, here's why this top broker just upgraded Rio Tinto shares to an 'overweight' rating.

A female employee in a hard hat and overalls with high visibility stripes sits at the wheel of a large mining vehicle with mining equipment in the background.

Image source: Getty Images

Why did the ASX 200 miner get upgraded?

JP Morgan has had a rethink about its iron ore price forecast.

As The Australian reports, the broker increased its forecast for the price of the industrial metal by 13% for 2024 to US$110 per tonne. JP Morgan also boosted its forecast price by 17% for 2025 to US$105 per tonne.

Indeed, iron ore had been defying a series of bearish forecasts and is currently trading for just under US$120 per tonne.

With iron ore delivering the lion's share of revenue for Rio Tinto shares, the ASX 200 miner got a boosted rating, along with Fortescue Metals Group Ltd (ASX: FMG) as reported here earlier.

According to JP Morgan's metals and mining analyst Lyndon Fagan:

As 2023 comes to a close, iron ore prices look well supported on the back of resilient Chinese steel production, port restocking, recent policy easing, and our view that China steel cuts will be aggressively implemented.

As for Rio Tinto, Fagan said, "The iron ore miners are our preferred sub-sector within the Aussie Metals & Mining space, with investor positioning underweight, a likely consensus earnings upgrade cycle coming, and valuations looking undemanding."

JP Morgan has a June 2024 price target of $116 for Rio Tinto shares. That's only 0.3% above the current share price. But then Rio Tinto stock also trades on a fully franked trailing yield of 5.1%.

How have Rio Tinto shares been tracking?

Rio Tinto shares are up 22% over the past 12 months. That figure doesn't include the ASX 200 miner's dividend payouts.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bernd Struben 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 JPMorgan Chase. 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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