Top brokers agree that Lynas shares are 'undervalued'

Now could be the time to pounce on this stock according to analysts.

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Lynas Rare Earths Ltd (ASX: LYC) shares could have market-beating potential.

That's the view of analysts at Ord Minnett, which believe the rare earths producer's shares are being undervalued by the market.

What is the broker saying about Lynas shares?

According to a note, the broker has described the mining company as "the safe way to play the sector " for investors.

This is largely because rare earths prices are currently at depressed levels. And as history shows, it is often best to buy miners at the bottom the cycle.

In addition, Ord Minnett highlights its position as the only significant producer of rare earths outside China. This makes it the "blue-chip" of the rare earths producers. It commented:

Lynas Rare Earths is an integrated source of rare earths from mine to customer. Lynas has a portfolio of aligned assets to explore, develop, mine and process rare earth minerals. These are the Mt Weld project and the Lynas Advanced Materials Plant (LAMP). The main asset of Lynas is the Mt Weld rare earths deposit in Western Australia. REO prices are depressed, which makes it the right time to buy in cheaply.

Most REO companies are still explorers and would-be developers. There is only one significant producer in Australia and the world ex-China – Lynas, at its LAMP in Malaysia. ‍ Lynas is the blue-chip stock of rare earths companies. It defied years of low prices by getting costs even lower and raising product quality. Now it is the non-Chinese producer of critical REOs for the energy transition. The Lynas multiples are punchy but deserved. It is the safe way to play the sector. ‍

Big returns

The note reveals that Ord Minnett currently has a buy rating and $8.00 price target on Lynas shares.

Based on its current share price of $6.55, this implies potential upside of 22% for investors over the next 12 months.

To put that into context, a $10,000 investment would become approximately $12,200 if the broker is on the money with its recommendation.

It is also worth noting that Ord Minnett is not alone with its bullish view on the stock.

For example, last week, Bell Potter put a buy rating and $7.80 price target on its shares. It notes that "with risks mounting to the upside for rare earths we retain our Buy outlook."

Elsewhere, Goldman Sachs has a buy rating and $7.50 price target on its shares. Earlier this week, the broker declared its shares as "undervalued" based on its long run rare earths price forecast.

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.

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