In morning trade the BHP Group Ltd (ASX: BHP) share price has edged higher despite being the subject of a bearish broker note out of UBS.
At the time of writing the mining giant's shares are up 0.5% to $38.42.
What has UBS said in its note?
According to the note, analysts at UBS have downgraded BHP's shares from a buy rating to a neutral rating with a slightly improved price target of $36.00.
This price target implies potential downside of almost 6.5% for its shares over the next 12 months excluding dividends.
Why has UBS downgraded BHP?
The note reveals that UBS expects iron ore and metallurgical coal prices to weaken over the next 6 to 12 months. Furthermore, its analysts aren't overly bullish on crude oil prices and believe the outlook is similarly subdued.
As a result of this and a strong share price rally in 2019 on the back of high iron ore prices, the broker feels the upside potential from here is limited and appears to believe now could be a good time to take profit.
Should you sell your shares?
Not everyone is bearish on BHP. According to a note out of the Macquarie equities desk last week, its analysts have retained their outperform rating and $41.00 price target on the Big Australian's shares.
This price target implies potential upside of almost 7% excluding dividends over the next 12 months.
The broker believes BHP is well-positioned to benefit from higher iron ore prices due to ongoing supply issues.
What now?
Whilst I think both brokers make fair points, at this stage I'm on the side of Macquarie with BHP and would be a buyer of its shares along with Rio Tinto Limited (ASX: RIO) and South32 Ltd (ASX: S32).
I think the strength of its balance sheet and the high levels of free cash flow it is generating means the miner is well-placed to return significant funds to shareholders through dividends and share buybacks in FY 2020.
