Should You Load Up On BHP Billiton plc & Fastjet PLC On Tuesday?

Royston Wild runs the rule over FTSE giants BHP Billiton plc (LON: BLT) and Fastjet PLC (LON: FJET).

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Today I am looking at the investment prospects of two Tuesday chargers.

Digger drives higher

The mining sector received a welcome boost in Tuesday business following reports that China is poised to introduce further monetary stimulus in an attempt to rescue the flailing domestic economy.

According to Bloomberg, China’s leaders, meeting at its latest Central Economic Work Conference, stressed the need to widen the fiscal deficit and stimulate the housing market. Policymakers also emphasised the need for monetary policy to become more “flexible” and fiscal policy more “forceful” in order to pave the way for structural reforms.

Diversified giant BHP Billiton (LSE: BLT) was one of those caught up in the updraft, with the company’s stock price adding 0.6% from Monday’s close. But I do not believe investors should get carried away by this latest announcement — after all, key economic data continues to struggle despite a string of supportive initiatives rolled out by Beijing in recent years.

Instead, I reckon shrewd investors should remain on the sidelines until economic indicators from the Asian powerhouse shows signs of marked improvement. This is particularly important as commodity producers continue to flood the market with unwanted material, worsening already-chronic supply/demand imbalances.

BHP Billiton is expected to record  a 58% earnings decline in the year concluding June 2016, creating the fourth decline in five years if realised. But despite the firm’s sickly revenues outlook, shares prices remain in line with a P/E rating of 24 times, way above the benchmark of 15 times that represents attractive value.

One reason for this is that dividend forecasts remain generous. It is true that BHP Billiton is anticipated to follow the likes of Glencore and Vedanta Resources and cut the payout — last year’s payout of 124 US cents per share to 115 cents in fiscal 2016. But this projection still creates an eye-popping yield of 9.8%, prompting many investors to plough in.

But the predicted dividend dwarfs anticipated earnings of 50 cents per share. And with BHP Billiton frantically slashing expenditure and offloading assets to manage its colossal debt pile — which stood at $24.4bn as of June — I believe income seekers could end up sorely disappointed.

Experiencing some turbulence

Africa-focussed flyer Fastjet (LSE: FJET) failed to enjoy a pre-Christmas bump on Tuesday following a disappointing trading update, and the company was last seen dealing 7.2% lower on the day.

Fastjet warned that revenues would fall short of expectations in both 2015 and 2016 thanks to the fallout of the Tanzanian general election. The political fracas has led to “reduced governmental and civil service traffic and lower demand for travel more widely across the country,” the low-cost airline advised.

As well as battling lower passenger numbers, Fastjet advised that currency headwinds are providing an additional headache.

While the emerging markets of Africa provide plenty of long-term growth opportunities, until conditions improve in its critical hub of Tanzania I believe Fastjet remains a risk too far at the present time.

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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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