Investing in the ASX large-cap stocks can be rewarding, but knowing when to sell is crucial. Some of us use sell rules. Others go by changes in fundamentals. Some, via the stars.
With the ASX bustling in 2024, it's a good time for investors to assess their portfolios. Today, I'm going to look at two large-cap ASX stocks: Bank of Queensland Ltd (ASX: BOQ) and Mineral Resources Ltd (ASX: MIN).
Here's what brokers are saying about the 2 ASX large-caps in their recent notes.
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Should you sell this ASX large-cap stock?
Bank of Queensland shares have struggled in 2024, having compressed by around 2% into the red at the time of writing.
The ASX large-cap stock currently has one of the highest trailing dividend yields of all the ASX 200 banking majors and boasts a 2.7% share of the Australian residential mortgage market.
Despite this, Goldman Sachs has a bearish outlook on BOQ shares. It rates the bank a sell based on foreseeable risk and valuation grounds. Its BOQ price target is $5.44 apiece, below the $5.98 per share the bank was trading at on Friday's close.
The broker points out that Australian banks – including BOQ – no longer offer the robust returns on equity (ROE) they once did.
Back in 2015, Australian banking majors boasted "the second highest average ROE of global comparable banks…". BOQ's 9.25% projected returns on equity for FY 2026 also fall short of this mark.
While we believe the company's transformation program a positive long-term strategy (aiming to deliver a lower cost to serve on the back of its digitisation efforts), we remain wary of both the high degree of execution risk and the potential for going over budget on investment spend (as has often been the case historically when banks undergo such large scale initiatives).
However, Goldman Sachs believes the high price-to-book (P/B) valuations aren't sustainable given the underwhelming ROE and potential for lower returns moving forward.
Despite this view, BOQ's current trailing dividend yield is 6.4%, which is attractive for income-focused investors, in my opinion. In fact, for the dividend-minded, I believe BOQ could offer compelling value.
Mineral Resources reiterated a sell
Goldman Sachs recently released a note on Mineral Resources highlighting several factors that investors should consider.
Despite the company's impressive $1.3 billion Onslow Haul Road asset sale in June, which generated significant proceeds, Goldman Sachs maintains a cautious outlook on the ASX large-cap stock.
The broker points out that the current market price reflects long-run commodity prices about 20% higher than their estimates.
It also highlights that Mineral Resources trades at a multiple significantly above its peers, with a price-to-net asset value (NAV) ratio of 1.35x and a 17x forward EBITDA multiple. The peer group is priced at 8x forward EBITDA.
This valuation suggests that much of the company's future growth is already priced in, leaving limited upside potential.
Furthermore, Goldman Sachs is concerned about the expected decline in lithium prices over the next couple of years. It expects lower spodumene prices going forward.
Our commodity team expect spodumene prices to average US$800/t and hydroxide at US$10,000/t (vs. spot c. US$1200/t and US$10,000/t) in 2H CY24 driven by our view of a market surplus over 2024-2025, and for the price to trade at or below marginal cost which we think will be set by Chinese integrated lepidolite producers.
The broker also forecasts low or negative free cash flow for the next two years, producing a free cash flow yield of negative 4% to negative 19%. As such, it values the miner at $47 per share, a 31.5% downside potential on the Mineral Resources share price of $68.63 at Friday's close.
It's not all negative sentiment on ASX large-cap stock, however. Analysts at Bell Potter rate Mineral Resources a buy. According to my colleague James, its diverse operations and growth outlook are two of Bell Potter's themes.
The rating is "underpinned by MIN's earnings diversification, strong insider ownership, clearly articulated strategies, expertise in contracting and internal growth options at Onslow as well as potential lithium expansions including into downstream".
It values the company at $85.00 per share, almost double that of Goldman.
ASX large-cap shares on the block
Both BOQ and Mineral Resources present unique opportunities and risks. For BOQ, Goldman says the high valuation amidst underwhelming returns makes it a potential candidate for selling.
Meanwhile, Mineral Resources' strategic asset sale offers have split hairs among brokers. Whilst Goldman rates it a sell, Bell Potter is bullish and sees it trading higher.
The difference in opinion highlights the importance of conducting your own due diligence.
