Stock of the day: Iluka Resources

(AI video summary)

This video was created on 10 January for IG audiences by ausbiz.

ASX code: ILU

Goldman Sachs shines a light on Iluka Resources

Iluka Resources, a leading producer of zircon, has recently gained the spotlight from Goldman Sachs, which has added it to its list of high-conviction stocks for 2025.

With a 'buy' recommendation and a price target of $7.70, Iluka's market share of 30% in the zircon industry positions it as a leader. This significant market presence, coupled with its cash flow strength, suggests that Iluka might be undervalued. This presents a potential opportunity for traders looking for growth in the resources sector.

Geopolitical influences on rare earth pricing

Rare earth elements are essential in modern technology, particularly in battery manufacturing. Iluka Resources' expansion into this sector with a new refinery under construction highlights its strategic positioning.

The geopolitical landscape, especially trade tensions between China and the United States (US), can greatly affect the availability and pricing of critical minerals like rare earths. China's historical control over rare earth exports could lead to supply gaps, making companies like Iluka valuable assets in a trader's portfolio.

As worldwide demand for technology grows, the rare earths sector offers a speculative yet potentially rewarding investment opportunity.

Balancing risks and rewards in resource investments

When considering investments in the resources sector, investors should consider both the risks and potential rewards. Mark Gardner from MPC Markets highlights that Iluka boasts a strong balance sheet and healthy earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins. However, investment decisions should not be based solely on expected supply gaps.

Notably, Iluka's price-to-earnings (P/E) ratio of 7.7 indicates a substantial discount compared to its historical averages, suggesting it could be a compelling buy for those willing to embrace some risk.

As with any investment, traders should conduct thorough research and assess their risk tolerance before making a decision.