BHP shares: 2 reasons to buy, and 2 to sell

It certainly has been a good year for BHP Group Ltd (ASX: BHP) shares.

As you can see below, the mining giant’s shares have been in fine form, rising 11% since this time last year despite demerging its petroleum assets to Woodside Energy Group Ltd (ASX: WDS).

Following this strong gain, investors may be wondering if it is too late to buy BHP shares. Is it?

Two reasons to buy BHP shares

One key reason why BHP shares could still be a buy is the potential yield on offer over the next 12 months.

For example, according to a recent note out of Macquarie, its analysts are expecting a fully franked $2.87 per share dividend in FY 2023. Based on the latest BHP share price of $45.86, this represents an attractive 6.2% dividend yield.

Another reason is the iron ore price. While BHP has a diverse portfolio of assets, it still generates a significant proportion of its earnings from the steel making ingredient. So, with the iron ore price trading around US$110 a tonne, the Big Australian is generating significant free cash flow at present.

Macquarie notes that if spot prices remain elevated for longer, then its estimates could prove conservative. This could ultimately mean that BHP’s dividend yield in FY 2023 is even larger than forecast.

The broker currently has an outperform rating and $50.00 price target on its shares.

Two reasons to sell

Not everyone is as positive on BHP shares as Macquarie.

For example, a number of brokers have recently downgraded the miner’s shares to the equivalent of hold ratings.

One even went a step further, downgrading its shares to a sell rating. That broker was UBS, which has put a sell rating and $40.00 price target on its shares.

The broker believes now is the time to sell after a strong rally recently. Particularly given the tough macro backdrop. It commented:

The macro backdrop is still fragile with global growth slowing and China’s reopening challenging in winter, iron ore fundamentals are still weak, and the stock is expensive at normalized commodity prices with free cash flow yield less than 5% at $80/ton iron ore and $180/ton met-coal.

Another reason that BHP shares could be a sell is the value on offer from other mining shares.

With many brokers saying that BHP share price has now peaked, they appear to believe that investors should be focusing on better value options in the sector.

For example, Morgans recently downgraded BHP to a hold rating and kept South32 Ltd (ASX: S32) on its best ideas list with an add rating and $5.30 price target. This implies potential upside of 30% for investors over the next 12 months.

That’s food for thought for investors.

The post BHP shares: 2 reasons to buy, and 2 to sell appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro 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 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 Scott Phillips.

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