Given this week's market selloff, investors might wonder which ASX 200 stocks have fallen into bargain territory.
Lynas Rare Earths Ltd (ASX: LYC) shares could be a contender. They have dropped almost 11% in the past 12 months to $6.13 at Friday's close. This trading range also marks a significant drop from their peak of $9.30 two years ago, as shown in the chart below.
So, is now the perfect time to buy this ASX 200 stock? Let's see what the experts are saying.
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Brokers like this ASX 200 stock
Despite the substantial dip, several brokers remain optimistic about Lynas Rare Earths. Bell Potter, for instance, maintains a buy rating on Lynas shares with a price target of $8.50.
This suggests a potential upside of almost 40% over the next year. The broker's confidence stems from the positive outlook for rare earths, essential components in many modern technologies, including electric vehicles (EVs) and renewable energy systems.
Lynas has shown strategic discipline by prioritising long-term contracts over spot market sales, which, according to Goldman Sachs, indicates a focus on stability and sustained growth.
Goldman also has a buy rating on Lynas shares, albeit with a reduced price target of $7.00 per share in a July note.
It believes that despite the lower sales volumes, the company is positioning itself well for future gains, especially with anticipated supply deficits in the rare earth market.
LYC remains disciplined on only fulfilling contracted customer requirements and not selling into the spot RE market, although it did draw down the 500t NdPr stockpile by a few hundred tonnes in the quarter.
Meanwhile, Ord Minnett describes Lynas as "the safe way" to invest in the theme of EVs and renewable energy, according to my colleague James.
It cited the ASX 200 stock's status as the only significant producer of rare earths outside China – a well-known fact, yet the stock is still down.
The broker has a buy rating with an $8.00 price target, indicating a potential 31% upside.
In fact, brokers are generally bullish on Lynas. According to CommSec, the stock is rated a buy by consensus.
But whether it is a bargain or not might be a different story. It trades on a price-to-earnings ratio (P/E) of 28.2 times at the time of writing.
This compares to the iShares Core S&P/ASX 200 ETF (ASX: IOZ), which tracks the benchmark index with a P/E of 18.8 times.
So despite being heavily sold in the past 24 months and the benchmark index setting several new highs, Lynas trades at a premium.
In my view, this doesn't qualify it as a 'bargain'.
Financials came in soft
In its more recent quarterly update, Lynas reported a 13.3% year-on-year decline in gross sales revenue to $136.6 million.
Total rare earth oxide (REO) production was down by more than half to 2,188 tonnes. Neodymium and praseodymium (NdPr) production also fell by 19.3% to 1,504 tonnes.
The company attributed these declines to maintenance at Lynas' Malaysian facility, impacting production volumes temporarily.
Despite these setbacks, Lynas is progressing with its plans to ramp up production. The company aims to increase its production capacity to 10,500 tonnes per annum.
The ASX 200 stock has also signed contracts with Zenith Energy to transition its Mt Weld mine to a gas-firmed hybrid renewable power station.
What long-term impact these moves will have remains to be seen.
Foolish takeout
Lynas has faced challenges in the past year. At this point, the potential for a rebound lies in whether rare earth prices can turn the tide.
With multiple brokers highlighting the ASX 200 stock's undervaluation and potential for growth, Lynas shares might be a compelling buy at their current low.
However, I think speculating on what commodity prices and their producers might do is high risk. Investors should conduct their own due diligence and speak to a professional as needed.
