Summary:

  • Rio Tinto (RIO) rose by 1.5% on Tuesday after Goldman Sachs upgraded the stock to buy.
  • We agree as it has gained momentum this year and is beginning a new market cycle.

Goldman Sachs analyst Paul Young upgraded Rio Tinto to buy from neutral, with a price target of A$108 from A$94. He sees improving margins and returns as a result of increasing iron ore prices. Young is also bullish on the company’s stock buyback program.

Young explains further that, “Rio is the only iron ore major that has sufficient capacity to increase high returning iron ore volumes over the medium-long run in our view.”

Our analysis focuses on the market cycles. We see RIO as having completed one cycle and beginning another, which is bullish for the near term. Further, we see a positive pattern forming, with the stock gaining momentum since December. Our targets are US$68.60 and US$71.70.

For more from Slim, or to learn about cycle analysis, check out the askSlim Market Week show every Friday on our YouTube channel.