ASX expert: Buy Lynas shares now

Top broker Goldman Sachs has this ASX rare earths share on its conviction list.

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Lynas Rare Earths Ltd (ASX: LYC) shares are up 2.52% to $6.11 per share on Thursday.

The ASX rare earths stock appears to be pulling itself out of a share price dip at the moment.

Lynas shares hit a 52-week low of $5.49 on 27 March before rebounding 11% to where they are today.

The current valuation is one of the reasons why top broker Goldman Sachs is recommending that investors buy Lynas shares today.

But before we get into the reasons why, let's recap what Lynas is all about.

Who is Lynas?

This ASX miner is the only significant producer of separated rare earths outside of China.

Lynas owns the Mt Weld mine in Western Australia, which is one of the world's premier rare earths deposits. This is where Lynas digs up a bunch of rare earths, like neodymium and praseodymium (NdPr), before processing them at facilities in Kalgoorlie, Western Australia and Kuantan, Malaysia. 

Rare earths are used in electronics, wind turbines, and hybrid and electric vehicles (EVs).

ASX expert tells investors to buy Lynas shares

In a new note to clients, Goldman Sachs has maintained its conviction buy rating on Lynas shares.

The broker has a 12-month price target of $7.50 on the ASX rare earths share. This implies a potential upside of 22.75% for investors who buy Lynas shares today.

The broker explains its rating:

LYC: Buy rated (on the APAC Conviction List) on: (1) Undervalued, trading at ~0.7x NAV (~A$8/sh) on our estimates, with a strong balance sheet (net cash of ~A$210mn), (2) NdPr market balanced over medium term but deficits over long run on higher Chinese supply, (3) Doubling NdPr production, LYNAS 2025 target (12ktpa NdPr) likely delivered in 2026 but could be upsized to >12ktpa NdPr (not in base case) based on the Mt Weld resource, possible third party feed, and ongoing supportive global government policy.

What's the latest news from Lynas?

The company's most recent price-sensitive news announcement was its 1H FY24 report in February.

Although the miner revealed a 74% half-year profit decline due to weaker commodity prices, investors were still pleased to see a profitable first half and rewarded Lynas with a 1.03% share price bump.

For the six months ended 31 December, Lynas reported a 36.5% revenue fall to $234.8 million.

Cost of sales declined 14% year over year to $159 million, and interest earnings on its generous cash balance helped the company deliver a net profit after tax (NPAT) of $39.5 million.

Looking ahead, Lynas CEO Amanda Lacaze said:

The rare earths market is important to many industries and we continue to see strong customer demand for Lynas' products.

Lynas has a proven track record of managing costs and operations to ensure that we can be successful in all market conditions, and across all stages of the market cycle.

Optimising our industrial footprint through operating efficiencies and capital growth projects will ensure Lynas is well positioned to benefit from forecast market growth and any improvement in market pricing conditions.

Motley Fool contributor Bronwyn Allen 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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