Rio Tinto versus BHP shares: One I’d buy and one I’d sell

BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) are the two largest Australian mining companies listed on the S&P/ASX 200 Index (ASX: XJO). Both stocks are focused on iron ore, which means they are exposed to potential commodity price swings.

When it comes to these two dominant forces, I’d buy one but sell the other.

I’d buy Rio Tinto shares

Rio Tinto shares closed 1.71% higher on Tuesday afternoon, at $135.03 a piece. Over the past month, the miner’s shares have climbed 1.65% and they’re now 14.23% higher for the year to date.

Rio Tinto has enjoyed a strong share price run in the second half of the year, driven by robust global demand for iron ore and copper. This has been spurred by early signs of a recovery in China’s sluggish economic growth.

The mining giant turned heads when it released its third-quarter update in October, where it revealed an uptick in production levels. While iron ore is Rio Tinto’s primary income-earning material, the miner has been actively boosting production of other metals beyond iron ore, particularly its copper operations. This helps to give the mining giant a volatility buffer against iron ore price swings. 

It looks like Rio Tinto is positioning itself well for more growth over the next 12 months and I’m optimistic that we’ll see more share price growth out of the company too. 

Tradingview data shows that out of 15 analysts, 7 have a buy or strong buy rating on Rio Tinto shares. Another 7 have a hold rating and just 1 has a sell recommendation. The maximum target price is $157.96 which implies a potential 16.98% upside at the time of writing. 

I’d sell BHP shares

BHP also finished the day in the green on Tuesday. At the close of the ASX the stock was 1.1% higher at $42.56 a piece. That means that over the past month BHP shares are down 1.87% and for the year-to-date the shares are 6.51% higher.

BHP is heavily reliant on iron ore prices, and while it has diversified with assets like copper, the price of iron ore significantly impacts BHP’s profitability and share price. China’s ongoing attempt to assert more control over iron ore pricing in its deals with BHP has been a headwind for the miner over the past month. The miner also recently announced it is abandoning acquisition discussions with Anglo American (LSE: AAL).

I think these headwinds are going to start taking a toll on the mining giant’s share price over the next 12 months. Analysts seem to be divided about the stock’s outlook too. Tradingview data shows that out of 19 analysts, 2 have a sell or strong sell rating on the shares. Another 11 have a hold rating and 6 have a buy or strong buy rating. The maximum target price is $48.38 a piece, which implies a potential 13.67% upside at the time of writing, but some predict BHP’s share price could fall 7.64% to $39.31 a piece.

The post Rio Tinto versus BHP shares: One I’d buy and one I’d sell appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.