Why top brokers say Rio Tinto stock is a better buy than BHP

The Rio Tinto share price could soar 20% over the coming year, outpacing BHP's share price gains.

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Three leading brokers have sounded off on whether Rio Tinto Ltd (ASX: RIO) stock or BHP Group Ltd (ASX: BHP) shares are the better buy in 2024.

Namely Citi, UBS and Morgan Stanley, who ran their slide rules over two S&P/ASX 200 Index (ASX: XJO) mining giants.

And, as The Australian Financial Review reports, all three brokers believe Rio Tinto stock is the one to own this year.

Here's why.

Why the brokers say Rio Tinto stock trumps BHP shares

The common thread amongst the three brokers is that Rio Tinto stock looks better positioned to capitalise on strong copper prices as the iron ore markets continue to struggle.

Although the iron ore price jumped 6% overnight to just over US$104 per tonne, most analysts believe it will trend lower from here amid lower steel demand out of China, whose property markets continue to struggle.

Despite the overnight lift, iron ore remains down more than 25% this year, having traded for US$143 per tonne in early January.

In a positive sign for the global growth outlook, copper prices have gone the other direction. Currently trading for US$9,412 per tonne, the red metal is up 10% from the US$8,554 per tonne where it started the year.

So, why does that have Citi forecasting that Rio Tinto stock will gain 20% over the next 12 months while BHP shares will gain a more modest 6%?

Part of the broker's bullishness stems from Rio's Oyu Tolgoi mine, located in Mongolia, where the miner aims to as much as double its copper production.

As Rio Tinto stated in its full-year results:

Our Copper C1 unit costs are expected to decrease in 2024, primarily driven by higher volumes at Oyu Tolgoi as the underground continues to ramp up and at Kennecott, where refined copper volumes are expected to increase following the planned smelter rebuild in 2023.

Noting that 21% of the revenue earned by Rio Tinto stock this year will come from aluminium and 13% from copper, Morgan Stanley also favours the miner over BHP.

And with copper prices expected to remain resilient amid the metal's crucial role in the global push to electrification, UBS also is bullish on Rio Tinto stock for its copper production alongside its healthy balance sheet.

According to UBS (quoted by the AFR):

BHP has more equity copper tonnes near term than Rio. But Rio is growing its copper production more quickly, and it has a large aluminium business, while BHP has a large met coal business.

UBS noted that Rio Tinto stock and BHP both "have other businesses in their portfolio in addition to iron ore".

However, the broker added, "We have positive views on both copper and aluminium, so Rio has more of a positive offset in terms of earnings momentum coming from its non-iron ore business."

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 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 Scott Phillips.

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