Can BHP Billiton plc Really Outperform Rio Tinto plc And Anglo American plc?

bhpbillitonAfter a subdued start to 2014, shares in BHP Billiton (LSE: BLT) (NYSE: BBL.US) have delivered a strong performance in recent weeks, with the highly-diversified mining company now up 10% during the course of 2014. This compares favourably to the wider index, which is up less than 1% during the same time period.

Indeed, as BHP Billiton’s first-half update (released this week) shows, the company is going from strength to strength, with annual records being achieved across twelve operations and four commodity classes. This has enabled the company to increase production by 9% versus the first half of 2013, which is a very strong performance. However, can shares in the company really outperform sector peers Rio Tinto (LSE: RIO) (NYSE: RIO.US) and Anglo American (LSE: AAL) in the future?

Mixed Growth Potential

Unlike its two peers, BHP Billiton is forecast to post rather disappointing growth numbers next year, with earnings per share (EPS) expected to fall by 5%. This is in sharp contrast to Rio Tinto and Anglo American, which are set to see their bottom-lines rise by 9% and 24% respectively. Where BHP Billiton shows strength, though, is in the current year. It is forecast to see an increase of 23% in net profit, while its two peers are set to report declining earnings of -8% (Rio Tinto) and -17% (Anglo American). So, over the two years, BHP Billiton comes out ahead of its peers.

Diversity Is Important

One reason for BHP’s relative stability is the sheer diversification of the business. As the most diversified mining company in the world, BHP Billiton tends not to be hit as hard as sector peers in the downturns, while its performance, although strong, may not quite match that of rivals in upturns. This means that BHP Billiton works out as a less volatile and more stable investment, which could prove to be an attractive quality for longer term investors. For example, 90% of Rio Tinto’s 2013 profit came from the mining of iron ore, which means that the company’s bottom-line is almost wholly dependent upon the price of only one metal.

Looking Ahead

BHP Billiton’s production update highlighted the fact that its focus in recent years on productivity is starting to pay off. Certainly, the company is not immune to weak metals prices, but its increased diversification versus Rio Tinto and Anglo American means that it could prove to be a better investment going forward. Trading on a price to earnings (P/E) ratio of 13 (versus 11.2 for Rio Tinto and 15.8 for Anglo American), BHP Billiton looks good value when its diversity and growth prospects are taken into account. As such, it remains the pick of the miners.

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Peter Stephens owns shares in BHP Billiton. The Motley Fool has no position in any of the shares mentioned.