Positive Data Means You Should Buy BHP Billiton Plc

A recent data release makes me even more bullish on BHP Billiton plc (LON: BLT).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As every Fool knows, business is made up of revenue and costs. Keep the former high and the latter low and your shareholders will have big smiles on their faces.

Of course, when you have control over only the costs of your business and absolutely no say whatsoever in how much you can charge, it makes life a little more unpredictable.

Indeed, companies whose goods are identical to those sold by their rivals have practically no say in what they receive for their goods. They simply must accept whatever the going rate is and, should that be lower than the cost to produce the good, they have little choice but to accept a loss, reduce costs and move on.

This leads me neatly onto mining companies. They have no control over the market price of the metals they mine and, as such, investors in mining companies must accept that profitability is very closely linked to the interaction between supply and demand for the metal in question.

So, I was very encouraged to read recently that one of the key indicators of the strength of the Chinese copper market has risen to its highest level on record. Chinese copper premiums (the cost of physical copper over and above the benchmark futures prices) have increased threefold in 2013 to reach a high of over $200 per tonne.

This is significant because not only does it mean that demand appears to be robust in China, it bodes well for companies such as BHP Billiton (LSE: BLT) (NYSE: BBL.US) because China accounts for around 40% of world copper demand. As such, an improvement in China’s appetite for copper means substantially higher demand for BHP Billiton’s third biggest division by revenue (base metals).

Of course, Chinese copper imports remain below the highs of 2011 but the news is nevertheless encouraging. In my view, it provides yet further evidence that the Chinese growth story remains on-track, which in itself is great news for BHP Billiton.

In addition, shares in BHP Billiton currently trade on a price-to-earnings (P/E) ratio of 13.4, which compares favourably to the FTSE 100’s P/E of 15. Furthermore, earnings per share are forecast to grow at an annualised rate of around 16% over the next two years.

This, combined with a current yield of 3.9%, means shares look great value at current price levels.

Of course, you may be looking outside of the mining sector for an addition to your portfolio. If you are, The Motley Fool has come up with a shortlist of its best ideas called 5 Shares You Can Retire On.

It’s completely free to take a look at the shortlist and I’d recommend you do so. Click here to view those 5 shares.

> Peter owns shares in BHP Billiton.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

AstraZeneca, a mega-cap growth stock that just got cheaper!

Our writer takes a closer look at this growth stock -- which also happens to be the largest company of…

Read more »

Investing Articles

How I’d invest £5,000 in FTSE growth stocks right now

Sumayya Mansoor explains why she’s bullish about these FTSE growth stocks, and would be willing to buy some shares.

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

ITV shares down after revenue guidance cut in first-half interim results

After releasing results this morning, the ITV share price slumped. But with several metrics looking positive, how will this effect…

Read more »

Investing Articles

This FTSE 100 stock’s down 50%, and a director just bought 8,000 shares

Directors of this blue-chip company have been snapping up a load of its shares. Should I do likewise and buy…

Read more »

Investing Articles

The BT share price is far too cheap, analysts say!

The BT share price fell on Thursday 25 July after the company's Q1 results. Dr James Fox takes a closer…

Read more »

Investing Articles

Is this the start of a stock market crash?

Global stock markets are experiencing some turbulence at the moment. Could investors be looking at a major decline in share…

Read more »

Investing Articles

As the Anglo American share price holds up on H1 results, should I buy?

Failed takeover attempts and major restructuring all affect the Anglo American share price. Here's what's happening at H1 time.

Read more »

Investing Articles

Here’s why the Centrica share price is tanking! And is this an opportunity?

The Centrica share price was down 8% in early trading. Our writer explores whether this is an opportunity for investors.

Read more »