BHP Billiton (BHP): The 'Big Fish' in Natural Resources

Posted Dec 18th 2009 1:30PM by Steven Halpern
Filed under: International Markets, China, Newsletters, BHP Billiton Ltd ADR (BHP), Commodities, Oil, Stocks to Buy

"To beef up our already strong collection of natural resource plays, we're adding Australia's BHP Billiton (BHP) to the mix," says long-term growth stock expert Stephen Leeb.

In The Complete Investor, he explains, "This $175 billion company is the largest mining company in the world and makes up some 14% of Australia's market index. It's truly the big fish in resource-rich Australia's ocean-sized pond."

"With more than 100 operations in 25 different countries, BHP produces a huge array of commodities and has a geographically diverse footprint to boot.

"Sales are concentrated in Asia (43%) and Europe (25%), with more than 20% of revenues generated from China alone. China's appetite for iron ore has pushed that commodity to BHP's top product, accounting for just over 20% of the company's $50.2 billion (in U.S. dollars) in fiscal 2009 sales.

"Metallurgical coal (used as a fuel in smelting steel) is next at 16%, with the company's petroleum, base metals, and energy coal businesses each contributing an additional 13% to 15% of overall sales.

"The petroleum business-which accounts for roughly 25% of BHP's $5.9 billion in profits, second only to its iron ore division-has the further advantage of serving as a hedge against rising mining costs insofar as these result from higher energy prices.

"Another plus for the stock is the strong Australian economy. Australia's economy seems poised for further growth as global demand for resources continues to gather steam.

"Long-term strength in Australia's economy makes BHP even more attractive for U.S. investors, who will reap extra gains from currency conversions as the Australian dollar rises in value.

"A similar calculus applies to income from BHP: the shares currently yield 3%, but U.S. investors will see income expand both because of earnings growth and an appreciating Australian dollar.

"BHP is financially strong with almost $11 billion in cash on its balance sheet and high and stable debt ratings from the major agencies.

"The shares trade at about 18 times forward earnings estimates, not expensive given the company's outlook for sustainable earnings growth in the low double digits. BHP Billiton joins our Growth Portfolio in our Low-Risk category."

Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.

Tags: australia stocks, bhp, bhp billiton, china stocks, coal stocks, commodities, commodity stocks, mining stocks, resource stocks, steel stocks, stephen leeb, steven halpern