Analysts may be revising up their valuations for ASX miners but the sector’s big recent run prompted Citigroup to cut its recommendation on some stocks.
The commodity that has been leading the charge higher is iron ore as the Chinese economy rebounds solidly from the COVID‐19 mayhem.
Other metals have also performed well as confidence about global growth got a boost with positive vaccine news.
Good news priced in
Analysts are left scrambling to upgrade their valuations for ASX miners, but this may not be enough to keep some ASX stocks in the good books.
Citigroup increased its price targets across the board for ASX miners. But it doesn’t believe there’s significant upside from current prices for most hard commodities, including copper, iron ore, aluminium and gold.
“Global Mining is up 30% in USD terms in the last month given a supportive macro backdrop and equity rotation into value,” said Citi.
“So, on DCF [discounted cash flow] it’s harder to find value using Citi LT [long-term] prices. For the large cap miners dominated by iron ore, FCF [free cash flow] generation is strong so dividends remain a key theme for us.”
Fortescue share price downgraded after hitting record
But with the Fortescue Metals Group Limited (ASX: FMG) share price racing to a record high, its strong FCF yield wasn’t enough to save it from a downgrade.
Citi cut its rating on the stock to “neutral” from “buy” even as it lifted its price target to $21 from $18.50 a share.
Other ASX miners that got downgraded
Fortescue isn’t the only one that got a chop. The broker also downgraded the Champion Iron Ltd (ASX: CIA) share price to “sell” from “neutral” with a new target price of $4.40 a share, up from $3.35.
But the downgrades couldn’t cool investors’ enthusiasm for iron ore miners. The Fortescue share price jumped 1% to $21.67, while the Champion Iron share price gained 1.6% to $5.16 during lunch time trade.
Outside of iron ore, the Western Areas Ltd (ASX: WSA) share price got lowered by Citi to “neutral” from “buy” as the nickel miner is trading too close to the broker’s price target of $2.65 a share.
Top ASX mining stocks to buy for 2021
On the flipside, Citi’s top picks in the mining sector include the Rio Tinto Limited (ASX: RIO) share price.
Other ASX mining stocks that Citi favours are the South32 Ltd (ASX: S32) share price and Alumina Limited (ASX: AWC) share price.
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Motley Fool contributor Brendon Lau owns shares of Rio Tinto Ltd. and South32 Ltd. Connect with me on Twitter @brenlau.
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 Bruce Jackson.
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