BHP Billiton (LSE: BLT) (NYSE: BBL.US) is a stock that is currently struggling as a result of lower commodity prices.
Indeed, its most recent full-year results showed that revenue decreased by 8.7%, with net profit falling by 29.5% and net operating cash flow also declining by 25.1%.
Clearly, 2013 was not a strong year for the company. However, as mentioned, commodity price falls were the main reason for the declines, with BHP Billiton faring better than many of its rivals as a result of its increased diversification.
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Indeed, this spread of risk is one of three main reasons why I’m thinking of adding to my stake in the company.
With operations spread across a range of commodities, BHP Billiton is one of the most diversified mining companies in the world. It currently mines a range of metals, including copper, iron ore, aluminium and nickel, as well as coal and petroleum.
Such a spread is highly attractive, in my view, because the long term prospects for a basket of commodities are likely to be better than those of just one or two commodities. In other words, the fluctuations in commodity prices are smoothed out over time when a company mines a range of them, as opposed to a single commodity such as gold.
Therefore, while BHP Billiton’s recent figures were disappointing, they could have been much worse were it not for its diversity of operations.
Secondly, I am a long-term emerging-market bull. I believe that the slowdown in China over the past year is a setback and not the start of a prolonged retreat.
Indeed, it is unlikely that any economy can maintain a stable rate of growth in the long run – there will naturally be times when the outlook is uncertain and periods when data disappoints. However, I believe that there will still be huge demand for commodities in the next decade from emerging-markets across the world, putting BHP Billiton in a strong (and potentially highly profitable) position.
Thirdly, BHP Billiton is forecast to deliver highly impressive growth over the next year. Earnings per share are forecast to grow by 19% and, when combined with a forward price to earnings (P/E) ratio of 11.1, puts its shares on a price to earnings growth (PEG) ratio of just 0.6. This means that its shares seem to offer good value at current levels.
So, I’m bullish on BHP Billiton’s future prospects and am keen on its diversity, the long-term potential from emerging markets and its current growth prospects.
