BHP Billiton (LSE: BLT) (NYSE: BBL.US) is a company that I think is extremely well positioned to enjoy strong performance in future years.
The main reason for this is simply the sheer size and scale of the business.
Indeed, as my fellow Fools will know, a key consideration when assessing the potential of any business is how low the costs are. This is particularly important for mining companies because the goods are homogenous and the price is already determined by the market.
So, being the biggest and most efficient has major advantages for a mining company and, looking at BHP Billiton’s most recent set of results, I believe that they are attempting to maximise market share rather than profit.
Clearly, the benefits of such a strategy (if it is being employed) will take time to come to fruition but, as an emerging market bull, I think that BHP Billiton could enjoy an extremely prosperous number of years where it utilises its size and scale to the maximum.
Of course, low costs and efficiencies are not the only reasons why I’m bullish on BHP Billiton.
I’m also impressed with the strength of its cash flow, despite fairly steep capital expenditures eating away at free cash flow.
Indeed, in its most recent year BHP Billiton generated free cash flow of £3.75 billion, which equates to a free cash flow yield of 3.8%.
Certainly, there are higher free cash flow yields available at other FTSE 100 listed companies, but they are usually to be found at businesses that do not have such large capital expenditures as BHP Billiton does. Therefore, 3.8% is extremely attractive in my view and shows that shares offer good value at current levels.
Furthermore, I’m feeling more bullish on the prospects for a US debt deal resolution and am keen to take more risk. BHP Billiton’s beta is 1.27 and indicates that if markets were to climb then its shares should climb to a greater extent than the index.
So, I feel that BHP Billiton is well placed to benefit from further growth in demand for its goods and that it can utilise its scale to grab market share. I also believe that shares offer good value based on the free cash flow yield, while BHP Billiton has a beta of more than 1 and this fits in with my bullish attitude towards the stock market at the moment.
