In recent days I have looked at why I believe BHP Billiton (LSE: BLT) (NYSE: BBL.US) is in danger of darting to the downside (the original article can be viewed here).
But, of course, the world of investing is never black-and-white business — it take a confluence of views to make a market, and the actual stock price is the only indisputable factor therein. With this in mind I have laid out the key factors that could, in fact, push BHP Billiton’s share price skywards.
Global manufacturing at multi-year highs
Signs of macroeconomic slowdown in China has, of course, shaken investor sentiment in recent times. Beijing’s role as the world’s factory floor makes it a glutton for commodities across all classes, so fresh HSBC manufacturing readings released last week — which showed Chinese PMI strike a seven-month nadir of 48.5 in February — cast renewed gloom over commodity prices looking ahead.
Still, investors should take on board the strong momentum seen elsewhere. Indeed, the latest JP Morgan Global Manufacturing PMI survey showed activity reach its highest for almost three years at 53.3 last month. Global activity has remained above the expansionary/contractionary benchmark of 50 for each of the past 15 months, a reassuring sign for commodity prices looking ahead.
Costs collapse boosts balance sheet
BHP Billiton should be applauded for the tremendous capital discipline installed across its operations, the firm noting in last month’s interims that “the commitment made 18 months ago to deliver more tonnes and more barrels from our existing infrastructure at a lower unit cost is delivering tangible results.”
Indeed, volume and cost efficiencies rang in at $4.9bn last year, and this is expected to rise to $5.5bn at the end of the current year, according to the company. I believe that the mining giant’s ongoing efforts to squeeze every last drop out of its efficiency drive should go some way to assuage investor fears over the potential impact of falling commodity prices.
Dig up delicious dividends
Of course, the consequences of weakening natural resources prices should not be ignored, but City analysts believe that BHP Billiton’s expense-slashing measures and rocketing production levels should keep dividends moving northwards, at least over the medium term.
BHP Billiton is expected to lift last year’s full-year dividend 5.4% to 122.3 US cents per share in the year concluding June 2013, with an additional 5.7% advanced pencilled in for next year to 129.3 cents.
These projections create meaty yields of 4% and 4.2% respectively, trampling a forward average of 3.1% for the FTSE 100 and 3.4% for the complete mining sector.
