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Investing in ASX large-cap stocks can be rewarding, but knowing when to reassess investments is crucial. Some investors use strict evaluation criteria, others base decisions on changes in fundamentals, and some might even rely on market trends. With the ASX bustling in 2024, it's a good time for investors to evaluate their portfolios. Today, let's look at two ASX bluechip stocks: Bank of Queensland Ltd (ASX:BOQ) and Mineral Resources Ltd (ASX:MIN).
Bank of Queensland Ltd (ASX:BOQ)
Bank of Queensland (ASX:BOQ) shares have faced challenges in 2024, currently down around 2%. Despite having one of the highest trailing dividend yields among the ASX 200 banking majors and holding a 2.7% share of the Australian residential mortgage market, Goldman Sachs has a cautious outlook on BOQ shares. The broker suggests a price target of $5.44, below its recent trading price of $5.98.
Goldman Sachs highlights that Australian banks, including BOQ, no longer offer the robust returns on equity (ROE) they once did. In 2015, Australian banking majors had the second highest average ROE of comparable global banks. BOQ's projected ROE of 9.25% for FY 2026 falls short of this benchmark.
The bank's transformation program, aiming to lower costs through digitization, is seen as a positive long-term strategy. However, Goldman Sachs remains wary of the high execution risk and potential budget overruns, common in large-scale initiatives. The broker also questions the sustainability of BOQ's high price-to-book (P/B) valuations given the underwhelming ROE and potential for lower returns.
Despite this cautious view, BOQ's current trailing dividend yield is 6.4%, which could be attractive for income-focused investors. For those prioritizing dividends, BOQ might still offer compelling value.
Mineral Resources Ltd (ASX: MIN)
Goldman Sachs recently released a note on Mineral Resources, maintaining a cautious outlook despite the company's impressive $1.3 billion Onslow Haul Road asset sale in June. The broker highlights that the current market price reflects long-run commodity prices about 20% higher than their estimates. 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, compared to the peer group's 8x forward EBITDA.
This valuation suggests that much of the company's future growth is already priced in, leaving limited upside potential. Goldman Sachs also anticipates a decline in lithium prices over the next couple of years, expecting lower spodumene prices, which could impact Mineral Resources' profitability. The broker forecasts low or negative free cash flow for the next two years, producing a free cash flow yield of negative 4% to negative 19%. Consequently, it values the miner at $47 per share, indicating a 31.5% downside potential from its recent price of $68.63.
However, not all analysts share this negative sentiment. Bell Potter highlights Mineral Resources' diverse operations and growth outlook. The rating is underpinned by the company's earnings diversification, strong insider ownership, clearly articulated strategies, expertise in contracting, and internal growth options at Onslow, as well as potential lithium expansions. Bell Potter values the company at $85.00 per share, significantly higher than Goldman Sachs' valuation.
Evaluating ASX Large-Cap Shares
Both BOQ and Mineral Resources present unique opportunities and risks. For BOQ, Goldman Sachs' concerns about high valuation amidst underwhelming returns suggest a need for cautious consideration. Meanwhile, Mineral Resources' strategic asset sale and diverse operations have divided analysts, with Goldman Sachs remaining cautious and Bell Potter more optimistic.
This difference in opinion highlights the importance of conducting thorough due diligence. Assessing investment goals, risk tolerance, and the fundamentals of each stock is crucial before making any decisions about the portfolio.
