Commodities stocks have been holding up, if with a bit of volatility, and the BHP Group (LSE: BHP) share price is one of them.
Global shortages and robust minerals prices have helped the stock to a five-year gain of 50%, while the FTSE 100 has managed just 7%.
More copper
Copper production rose in the first half, by 7% compared to the first half last year. The price of the metal has slipped in the past 12 months, though, which takes a bit of the shine off.
Still, the long-term trend might be fine, with copper prices nicely ahead over five years.
Iron ore production was mixed, up 4% between Q1 and Q2, but down 2% in the half. However, the ore price has gained in the past 12 months.
FY production guidance is largely unchanged, except for a lowering of metallurgical coal output.
Pick of the sector?
I’m mainly bullish over the whole mining sector for the long term. As there’s so much worldwide uncertainty, stock prices don’t look too high, and dividend yields are healthy.
China is the big unknown, as it tends to drive global prices. And the country has admitted it faces a tough economy.
But it already looks like stimulus measures could help soften any dip, and I expect long-term demand to hold up.
Risks
The main thing I don’t like about the sector is that it has no control over the prices of its products. And they’re indistinguishable anyway. Copper is copper, no matter who you get it from.
But I do think the demand could hold up, as we shift more and more to renewable energy. That should mean rising electricity generation, which could be good for copper prices.
Any dips in copper or iron prices, though, could hit the BHP Group share price. And if dividend forecasts should fall, we could see more pain.
Valuation
Forecasts for the next few years are pretty flat. But I think I’d put that down mainly to the great uncertainty in the markets.
When you just don’t know what’s likely to happen next year, the safest prediction is probably that it will be a lot like this year.
We’re looking at price-to-earnings (P/E) multiples of around 11 to 12, with a dividend yield of 5.8% this year. The yield could dip a bit, but I think there’s room there for it to still be decent.
Long term
For anyone wary of the short-term share price in the next 12 months or so, I think it could be volatile. And I’d stay away.
But long-term investors need to expect volatility in this sector, as it’s just something we can’t avoid. And on today’s valuation, I reckon those looking to buy and hold for 10 or 20 years could to well to consider BHP.
But I do think the next five to 10 years could test our nerves a bit.
