Blue-chip S&P/ASX 200 Index (ASX: XJO) shares that have been sold off can be great opportunities. Buying a cyclical ASX share at a seemingly low point could be a smart move.
The ASX 200 mining share giants BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) have dropped 28% and 23%, respectively, since 29 December 2023, as the chart below shows.
The major ASX iron ore shares have suffered in recent times amid the iron ore price sinking to just below US$95 per tonne, according to Trading Economics.
As commodity businesses, the resource price is integral to the level of profitability they can achieve. Production costs don't change much in the shorter-term, so a rise in the resource price largely adds to profit and a fall in the resource price means a hit to profit-making. For these ASX 200 share giants, the latter is happening, and their monthly profitability has declined.
But, the question is whether this is a good moment to invest.
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Why this looks like a good time to buy these ASX 200 shares
I've long been an advocate of waiting to invest in ASX iron ore shares until the iron ore price has dropped (preferably below US$100 per tonne). That has now happened.
It's difficult to predict what will happen with Chinese iron ore demand considering the US tariffs on the Chinese economy. Will iron ore demand hold up? But, if the Chinese economy does weaken, then I think it's likely Chinese officials will launch financial stimulus to try to help spur an economic recovery.
So, at this lower level for both the iron ore price and the share prices, I think there's a useful margin of safety here with the ASX 200 shares.
Additionally, with the Rio Tinto share price and BHP share price lower, we can buy exposure to their copper mining operations at a cheaper price than in most of the last four years.
I'm bullish about copper because of its exposure to the growth of electric grids, electric vehicles, renewable energy generation, devices and many other areas.
Copper demand is expected to steadily grow in the coming years, but it's supposedly getting harder to find large, easily accessible copper deposits. That dynamic says to me that copper prices are likely to generally rise over the longer-term, so BHP and Rio Tinto's copper earnings could grow thanks to their projects in Australia, South America, North America and Asia.
I also appreciate both ASX shares' efforts to diversify earnings, with Rio Tinto making major lithium moves and BHP investing in a potash (fertiliser) project in Canada. But, they're not likely to be the biggest earnings generators in the coming years, in my view.
Overall, this seems to me like a promising time to be contrarian on these major ASX 200 iron ore shares for the longer-term.
