Hot Stock: BHP Billiton

Diversified commodities.

While Melbourne-based BHP Billiton (ASX: BHP) is one of the largest diversified natural resources companies in the world, Canadians will remember the name from its now-infamous hostile takeover attempt of PotashCorp in August 2010. Although the Conservative government may not have been a fan of the company—it said a takeover wouldn’t provide a net benefit to the company—Canadian investors might want to embrace this mining giant.

Andrew Keen, global head of metals and mining research for HSBC, recently upgraded the stock from neutral to overweight. He also has a 12-month price target of $38 per share; BHP is currently trading at about $31. The upgrade is mostly due to what he sees as a better-than-expected commodity market. In an April 22 report, he wrote that there’s too much pessimism in copper markets and that issues in the iron ore industry, such as oversupply, are already priced into the market.

This is important for BHP, because these are two of the markets they deal in. It also produces petroleum, aluminum, metallurgical coal and a number of other commodities.

Adrian Wood, an analyst with Macquarie Equities Research, says that while Q3 performance was rocky—earnings came in 4.8% below his forecasts—he sees no reason why the company can’t meet its full-year production targets. Part of the reason why earnings were down, he wrote in an April 17 report, was due to poor weather in important markets, which impacted some production.

Going forward, both new and expanding mines should improve revenues and earnings. According to the company, it has 12 projects across a number of commodities that will come online between 2014 and 2016.

While commodity prices have been volatile, 60% of the analysts who cover this stock still thinks BHP’s a buy, with target prices reaching as high as $45. The reason to take a close look at this company is twofold: it’s one of the most diversified miners around, so one commodity’s underperformance shouldn’t have as significant an impact on the company as it would if it was just a coal or iron ore producer. It also has a 3.53% yield, so you can still get paid while the short-term issues work themselves out.

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