Is It Time to Buy BHP Billiton Ltd Stock?

BHP Billiton is looking to jettison underperforming assets; is it time to buy this streamlining mining giant?

Sep 3, 2014 at 11:20AM

BHP Billiton (NYSE:BHP) has expanded aggressively to meet global demand for natural resources, driven by China's seemingly unstoppable growth over the last decade. Only China's growth has now begun to slow, taking global raw material prices down with it. In this new environment, BHP Billiton has been getting leaner and meaner, and is increasingly looking like a good long-term bet on global growth—from China and beyond.

A big shift

During mining equipment supplier Joy Global's (NYSE:JOY) fourth quarter conference call, Edward Doheny, who is now the company's CEO, summed up the shift that's taken place in the mining industry: "In the last 24 months, we've seen over 25 new CEOs at mining companies take over with a focus on cost reduction and returns to shareholders after years of focus on growth and investment."

Growth had been the focus, because China's gross domestic product was growing at a double-digit clip. That pace demanded vast amounts of natural resources to support the construction of everything from homes to cars. However, growth has since slipped and is projected to keep heading lower, with the World Bank projecting 7.4% GDP growth in 2016. While that's huge compared to the projected U.S. growth rate of 3% that year, it's a far cry from the 10% plus rate that drove demand growth, and investment, in the mining industry.

BHP Chart

BHP data by YCharts

So there's a good reason why BHP Billiton's shares have fallen roughly 30% from their recent highs of $100 a share or so: The prices for the commodities BHP sells have been falling as China's economy slows and, with them, BHP's financial performance. Like most miners, BHP has been retrenching.

Changing with the times

For example, Joy Global noted a 40% reduction in capital spending in 2013 across the mining industries it served. BHP trimmed its capital budget by roughly a third in fiscal 2014, a fact that was announced by the company's new CEO, Andrew Mackenzie, who took the reins in May 2013.

And another important bullet point from the fiscal 2014 slide deck? "We will remain internally focused and return excess cash in a consistent manner." In other words, the company is focusing on shareholder returns. That helps explain the recent examination of a spinoff of underperforming assets as the company looks to focus around iron ore, copper, metallurgical coal, and oil. Some are calling it an unwinding of the merger between BHP and Billiton that created the seemingly unwieldy giant.

That said, the miner hasn't given up on spending or growth. It's simply being more careful. For example, it's been using technology to improve its cost structure. A good example is automated trucks, which increased truck utilization by 10%. So even as production increased 9% across the company in fiscal 2014, costs have been heading lower in key businesses. For example, copper costs fell 6% and iron ore 12%.

BHP is getting better at what it does and is shifting away from less desirable businesses. And, it's important to remember that China's growth hasn't stopped -- it's just slowing. So there's still demand for the commodities that BHP sells, but it's being outstripped by supply. Eventually the highest cost miners will close up, leaving companies like BHP to benefit from the eventual commodity price recovery.

It's also worth noting that the World Bank expects fellow global giant India's GDP growth rate to accelerate from 4.5% in 2012 to 6.6% in 2016. That would go a long way toward supporting commodity demand and prices even as China continues to slow (from 7.7% to 7.4% over the same span).

BHP Chart

BHP data by YCharts

Meanwhile, BHP's P/E is roughly 12.5, near the low end of its range over the past decade and below its five year average of around 16. BHP's yield, meanwhile, is a generous 3.3% or so, nearly a full percentage point above its five-year average of 2.6%. With a strengthening core business and global growth set to slowly work off excess commodity capacity, BHP should be a solid option for long-term investors at recent prices.

Do you know this energy tax "loophole"?

You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers