BHP Billiton (ASX:BHP) is one of the most widely held stocks in Australia and is often a core holding in many stock portfolios. Over the last few years the stock have reflected the fortunes of the commodities boom and as a result the BHP stock price saw a peak last year of over $45 only to come tumbling down to less than $25 a few months later. But maybe at current prices BHP is once again a stock worth looking at?
Often people think of BHP as simply a large miner of iron ore and coal, but BHP is actually a widely diversified mining giant in terms of both products and geographically. The company has some 41,000 employees working in around 25 countries and according the company’s website has significant positions in aluminium, energy coal and metallurgical coal, copper, manganese, iron ore, uranium, nickel, silver and titanium minerals, and also substantial interests in oil, gas, liquefied natural gas and diamonds.
BHP businesses include:
- Aluminium – BHP is the sixth largest producer of primary aluminium and has operations in several countries including South Africa, Brazil and Australia.
- Base metals – the company a leading producer of copper, silver, lead and uranium. Within this business BHP operates Olympic Dam which is the world’s fourth largest deposit of uranium. It also contains significant quantities of silver, copper and gold.
- Iron Ore – BHP is one of the world’s major suppliers of iron ore with operations in Brazil and in the Pilbara region of Western Australia.
- Diamonds & Speciality Products – this group covers BHP’s diamonds and titanium operations.
- Manganese – BHP is ranked number one in the world in seaborne supply of manganese ore and in one of the top three producers of manganese.
- Energy Coal – BHP is one of the world’s largest suppliers of thermal coal to Europe, Asia and the US.
- Metallurgical Coal – the company is the largest supplier of seaborne traded hard coking coal and also supplies a range of other coals.
- Petroleum – many Australia’s probably do not fully appreciate that BHP has significant oil and gas interests and that the company has invested heavily in recent years in exploration. It would seem BHP is betting on the long term demand for oil and gas.
- Stainless Steel Materials – BHP Billiton is the world’s third largest nickel producer. This business also supplies cobalt.
So BHP is not simply a coal or iron ore play. Owning BHP shares gives investors exposure to a wide range of commodities including uranium, which is something I feel will be in great demand in years to come as new nuclear reactors are put into service in places such as Japan, Europe, Russia and China.
In 2008 BHP had an attributable profit (excluding exceptional items) of US $15.4 billion and a net operating cashflow of US$18.2 billion. That is serious money in anyone’s language.
Even after the recent rout on the share market BHP is one of those stocks that shows investors that sometimes you are better off just hanging on and not selling along with the crowd. Just imagine how you would feel now with BHP shares up around $35 if you sold them down around $25 back in late 2008!
BHP Billiton Limted (ASX: BHP) 10 year price chart.
You can also see quite clearly that if you had invested in BHP prior to 2008 you would still be ahead, and well ahead if you had invested back when the prices hovered around $10 for many years around 2000-2003.
Back in May 2008 when BHP shares were trading around the $40 mark the P/E ratio was around 16 but it has since dropped back to around 15, but of course you need to have some confidence in the earnings outlook to trust that figure.
At around the current price the stock also yields a dividend of 2.2% which is not exactly something to get excited about, but it is fully franked which helps at tax time.
I also like the ROE (Return on Equity) which has been above 40 since 2005 and the Net Profit Margin which was around 25% as of 2008/06. These numbers will probably get knocked around because of the fall in commodities prices but they are still likely to hold up fairly well.
If you believe that the demand for commodities will pick up again and that we are in the middle of what Jim Rogers describes as a long term commodities super-cycle, then BHP might be a good stock to look at.
Disclosure: the author of this article has a direct and indirect interest in BHP shares and wishes he had purchased more when they were around $25 last year!