Why BHP Billiton plc Is A Better Buy Than Randgold Resources Limited And Polymetal International PLC

Here’s why I’d buy BHP Billiton plc (LON: BLT) instead of Randgold Resources Limited (LON: RRS) and Polymetal International PLC (LON: POLY)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Encouraging progress

Today’s update from gold miner, Randgold Resources (LSE: RRS) (NASDAQ: GOLD.US), is relatively positive and shows that the company is making encouraging progress across all of its major assets in Africa. Furthermore, the company remains upbeat regarding the future for mining in the Ivory Coast, where a new mining code has been introduced, and is positive about its future prospects.

For example, the recovery rate at Randgold’s Tonton mine has been steadily improving as a result of the commissioning of new hydrocone crushers, with capacity forecast to rise over the medium term as a number of new crushers are installed. Furthermore, Randgold has identified a number of new prospects, with a first-phase diamond drilling programme currently underway in the Boundiali permit.

Looking ahead, Randgold is forecast to increase its bottom line by 24% next year even though the price of gold recently reached a five year low. Of course, the fall in the price of gold has been less extreme than for some other commodities (such as oil and iron ore) and, while the financial challenges in Europe have abated somewhat, its future seems to be relatively robust. As such, Randgold’s price to earnings growth (PEG) ratio of 0.8 holds great appeal and it appears to be well-worth buying at the present time.

Very desirable

Similarly, precious metals peer, Polymetal (LSE: POLY), is also a very desirable stock at the present time. That’s at least partly because it trades on a very low price to earnings (P/E) ratio of just 9.2, which indicates that there is significant upward re-rating potential. Furthermore, Polymetal offers superb dividend potential, with the company’s shares currently yielding a very enticing 4.5%.

However, it’s the dividend growth potential that is on offer which really appeals. For example, Polymetal currently pays out just 42% of net profit as a dividend, which means that there is significant scope for a rapid rise in shareholder payouts over the medium to long term.

Better buy

Despite the potential of Randgold and Polymetal, BHP Billiton (LSE: BLT) (NYSE: BBL.US) still seems to be the better buy. It offers a very strong balance sheet and a degree of diversity that is difficult to match among resources companies. Furthermore, it is in the midst of a transitional period that has seen a number of non-core assets divested, as well as improving efficiencies, which could boost its long-term profit potential. And, with BHP adopting a strategy of increasing output during a weak price environment, it is squeezing less financially sound rivals and, in the long run, this could improve its position relative to its mining sector peers.

Despite BHP’s bottom line being forecast to come under pressure this year and next, it appears to be the pick of the three stocks. Its yield of 6.9% is exceptionally high and, while dividends are likely to be cut in order to allow sufficient coverage by profit, it remains an appealing income stock with a bright long term future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »