Buy Rio Tinto shares ahead of BHP: Goldman Sachs

When it comes to the mining sector, there are two ASX mining shares that stand head and shoulders above the rest.

These are of course BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO).

Collectively, these mining giants are bigger than the big four banks combined and distribute tens of billions of dollars in dividends each year.

But if you could only buy one of these ASX mining shares, which one would it be?

Well, according to analysts at Goldman Sachs, Rio Tinto shares are the ones to buy ahead of BHP right now.

Buy Rio Tinto shares ahead of BHP

According to the note, the broker has reiterated its conviction buy rating on Rio Tinto shares with a price target of $138.30.

Based on the current Rio Tinto share price of $121.66, this implies potential upside of almost 14% for investors over the next 12 months.

And with Goldman expecting a 7% fully franked dividend yield over the next 12 months, the total return stretches to approximately 21%.

As a comparison, the broker has retained its neutral rating and $50.40 price target on BHP’s shares.

Why Rio Tinto?

Goldman has a preference for Rio Tinto shares over BHP due to its valuation, free cash flow generation, and production growth outlook. It explained:

We prefer RIO over BHP on valuation & FCF and an expected operational turnaround in the Pilbara and copper (Oyu Tolgoi) driving higher Cu Eq growth over the next 2-years.

The broker is also expecting a strong quarterly update from Rio Tinto later this month, whereas it suspects that “weak results” could be coming from BHP. It adds:

Positive results from: RIO with Pilbara shipment data indicating a 13% YoY increase in Pilbara iron ore shipments to ~80Mt (see Exhibit 11) putting RIO well on track to hit the top end of the 320-335Mt guidance range for 2023 when seasonally adjusting for wet weather in 1H. […] Weak results from: BHP with lower YoY iron ore (safety, maintenance, port debottlenecking tie-in impacts) and met coal shipments (wet weather) and an expected decline in copper production from Spence in Chile due to plant tie-ins.

The post Buy Rio Tinto shares ahead of BHP: Goldman Sachs 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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