If you are looking for some big returns for your investment portfolio, then it could pay to listen to what Goldman Sachs is saying about one ASX 200 stock.
The broker has named this stock on its highly coveted Asia-Pacific conviction list and is tipping it to generate big returns over the next 12 months.
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Which ASX 200 stock?
The stock in question is Iluka Resources Ltd (ASX: ILU).
It is a critical minerals company producing zircon and high grade titanium feedstocks, and is set to become a globally significant supplier of rare earths.
According to the note, there are three key reasons why Goldman Sachs believes this ASX 200 stock could be a standout buy right now.
The first reason is its attractive valuation. Goldman estimates that its shares are trading at 0.6x net asset value (NAV), with almost zero value being given to its rare earths projects. It said:
Attractive valuation: trading at ~0.6x NAV (~A$8.1/sh) and pricing in almost no value to the rare earth refinery and Wimmera rare earth project. Another way of looking at it, ILU has ~A$1bn (~A$2.3/sh) of mineral sands inventories on the balance sheet and their ~20% stake in DRR is worth ~A$1.1/sh, which implies the market is pricing in little value for the mineral sands and rare earth assets.
Another reason to be positive is its "compelling Mineral Sands FCF and Rare Earth growth potential."
The broker highlights that the ASX 200 stock's free cash flow (FCF) yield would be approximately 20% in FY 2026 without its rare earths refinery spending. It explains:
ILU is trading on a FCF yield of ~20% in 2026E without the RE refinery capex. We are positive on ILU's project pipeline and forecast >20% production growth in mineral sands volumes, ~18ktpa of Rare Earths (~4ktpa of high value NdPr) over the next 5yrs. We think ILU's Eneabba RE refinery is a strategic asset considering it will be only the fifth Western World RE refinery.
Finally, Goldman thinks the ASX 200 stock is poised to benefit from strong demand and supply shortages. It said:
Demand for Zircon and high grade TiO2 feedstock expected to recover in 2025 and supply shortages over medium term. We think the current drop in sales volumes and prices will be relatively short-lived compared to prior cycles due to the supply backdrop.
Big returns
Goldman has a conviction buy rating and $7.00 price target on the company's shares.
Based on its current share price of $4.56, this implies potential upside of almost 54% for investors over the next 12 months.
In addition, Goldman is forecasting a modest 1.1% dividend yield in FY 2025 and then a whopping 10.6% dividend yield in FY 2026.
All in all, this could make the ASX 200 stock one to consider if you're looking for mining sector exposure.
