Guess who just slapped a buy rating on BHP shares?

One broker thinks that this mining giant's shares are in the buy zone in June.

| More on:
A little boy holds his fingers to his head posing as a bull.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

BHP Group Ltd (ASX: BHP) shares have just found a new bull.

And according to the broker, investors should be snapping up the Big Australian's shares before it's too late.

Who is bullish on BHP shares?

The broker in question is Goldman Sachs.

According to a note out of the investment bank, its analysts have reinstated coverage on the miner with a buy rating and $49.00 price target.

Based on the current BHP share price of $44.05, this implies potential upside of 11.2% for investors over the next 12 months.

But that isn't the end of the returns. Goldman is forecasting fully franked dividend yields of 4.9% in FY 2024 and then 4.3% in FY 2025.

This stretches the total potential 12-month return from BHP shares to around 16%.

Why should you invest?

Goldman has named a few reasons why it thinks investors should be picking up the mining giant's shares today. One is its attractive valuation. It said:

BHP is currently trading at ~6.0x NTM EBITDA (25-yr average EV/EBITDA of 6.6x), a slight premium to RIO on ~5x; both are trading at ~0.9xNAV. Over the last 10 years, BHP has traded at a ~0.5x premium to global mining peers. We believe this premium can be partly maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore where BHP maintains superior FCF/t vs. peers).

The miner's exposure to copper is another reason to invest according to the broker. It adds:

We remain bullish on copper and expect BHP to generate US$6.8bn in copper EBITDA in FY24 (27% of EBITDA) and almost doubling to US$11.5bn in FY25 (41% of EBITDA) due to ongoing supply side challenges and increasing demand.

In addition, Goldman highlights that the company has a significant growth opportunity in copper despite its recent failure to acquire Anglo American (LSE: AAL). It said:

We continue to believe that BHP's major opportunity is growing copper production in Chile at Escondida and Spence, and growing production and capturing synergies in South Australia between Olympic Dam and the previous OZL assets. We think BHP has a competitive edge in copper heap leaching and believe it can potentially fill ~200ktpa of spare cathode capacity by 2030 and possibly the full ~315ktpa spare capacity by 2035.

Overall, this could make BHP shares a great option for investors that are looking for some mining sector exposure for their portfolio this month.

Motley Fool contributor James Mickleboro 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.

More on Materials Shares

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Materials Shares

Core Lithium share price hits a multi-year low: Will the tide change soon?

Are analysts now seeing value emerge from the lithium miner's shares?

Read more »

Yellow rising arrow on a brick wall with a man on a ladder.
Materials Shares

Brickworks share price jumps on big Soul Patts news

Brickworks has just built more stability to its business.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Materials Shares

Meet the speculative ASX stock that could rise 200%

Bell Potter thinks this high risk stock could triple your money.

Read more »

A female miner wearing a high vis vest and hard hard smiles and holds a clipboard while inspecting a mine site with a colleague.
Materials Shares

Guess which ASX 200 mining stock is making a $276m UK acquisition

BHP failed in its UK takeover attempt but this mining stock is having more luck.

Read more »

A man in his 30s with a clipped beard sits at his laptop on a desk with one finger to the side of his face and his chin resting on his thumb as he looks concerned while staring at his computer screen.
Materials Shares

Where could the Pilbara Minerals share price be in 12 months?

Will the market be kind to this lithium giant? Let's see what analysts are expecting.

Read more »

A female worker in a hard hat smiles in an oil field.
Materials Shares

Buy Rio Tinto and these 4 ASX mining stocks in June

Analysts think these miners could offer outsized returns over the next 12 months.

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Materials Shares

Why are Sayona Mining shares down 80% in a year?

This lithium miner is having a tough time. What's behind this?

Read more »

A group of three men in hard hats and high visibility vests stand together at a mine site while one points and the others look on with piles of dirt and mining equipment in the background.
Materials Shares

Here's the iron ore price forecast through to 2027

Let's see what analysts are forecasting for the steel making ingredient.

Read more »