BHP Group Ltd (ASX: BHP) shares have been heavily sold by investors in 2024 and are down 21% this year to date.
Several factors are behind the downtrend, notwithstanding significant price slumps in iron ore and other key commodities.
But some brokers say the situation is not all negative for BHP. Morgan Stanley upgraded its rating on BHP to a buy in its latest round of recommendations.
Let's see the latest.
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Analysts bullish on BHP shares
After an extended sell-off, Morgan Stanley upgraded its rating on BHP, setting a price target of $47.50.
At BHP's current share price of $39.82, this implies an upside potential of 19%.
Morgan Stanley isn't the only broker bullish on BHP. Goldman Sachs has also tipped BHP shares as a buy, citing potential undervaluation following the recent price weaknesses.
Goldman believes BHP's valuation is justified and sustainable, thanks to the miner's "ongoing superior margins and operating performance".
It set a price target of $48.80 for BHP shares – slightly ahead of Morgan Stanley's – indicating approximately 22.5% upside if correct.
It also forecasts dividends of US$1.16 and US$1.13 per share in the next two years, respectively.
These bullish ratings come as iron ore projections continue to soften. Commonwealth Bank of Australia (ASX: CBA) says there is a scenario where US$80 per tonne of iron ore is plausible.
Analysts seem to be looking past this, with consensus rating BHP shares a buy, according to CommSec.
BHP's potash play
While BHP shares are sensitive to iron ore pricing, elsewhere, there are concerns about its $16 billion bet on the potash market.
Economists at Rabobank have warned that the global potash market is currently oversupplied, according to The Australian Financial Review.
This has caused potash prices to fall by 13% this year, and Rabobank suggests that prices may approach operational costs, potentially forcing some producers to cut output. This could push prices down even further.
Strong prices are essential for the project's profitability and cash flows, so this could be a risk factor moving forward.
BHP has already committed US$4.9 billion for the second stage of its Jansen potash project in Canada, with the first stage set to begin production in 2026.
It is unclear as to what direct impact this may have on BHP shares.
Foolish takeaway
Despite concerns around the iron ore and potash markets, analysts remain bullish on BHP shares, citing strong performance in its core mining operations.
The stock is down 11% in the past year.
