China Slowdown Doesn’t Put Me Off BHP Billiton plc

As all Fools know, there is no such thing as exponential growth. No economy in the history of the world has been able to deliver uninterrupted growth in GDP.

For instance, the USA has had its issues along the way, with the Great Depression of the 1930s being an obvious example. Furthermore, the third largest economy in the world, Japan, was seen as ‘the next big thing’ in the 1980s but since then has experienced at least one ‘lost decade’. Although now it seems to be on the up, its journey to (near the) top has not been a smooth one.

So, recent talk of a ‘slowdown’ in China does not put me off investing in companies that are closely linked to its growth. One stock that falls squarely into that category is BHP Billiton (LSE: BLT) (NYSE: BBL.US).

Of course, the cooling off of Chinese growth in recent months has impacted mining companies such as BHP Billiton. Indeed, the effect has been exacerbated by the fact that the cost base of mining companies such as BHP Billiton have increased by over 300% since 2005.

This was fine when metal prices were high but margins are now being squeezed, with BHP Billiton responding by finding $800 million of cost savings from its coal business alone and closing two unprofitable coal mines.

However, I believe that the Chinese growth story is far from over and, as such, remain optimistic about BHP Billiton’s prospects despite its cost base being considerably higher than it was in the past.

For starters, China is still growing at over 7% per annum. This may be less than commentators had hoped for but is still phenomenal.

Furthermore, BHP Billiton makes for a sound investment with exposure to such a fast-growing market, with it offering a yield of 3.6% and trading on a price-to-earnings ratio of just 9.8. This compares very favourably to the wider mining sector on 12 and the FTSE 100 on 15.2.

Of course, you may already hold BHP Billiton or may be looking for other ideas. In this case, I’d recommend you take a look at The Motley Fool’s Top Growth Share of 2013.

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> Peter owns shares in BHP Billiton.