Is it time to invest in BHP stock?
Stock Name And Trading Stock Exchange Platform:–
BHP Group Limited BHP – Primarily traded on the ASX (Australian Stock Exchange)
American Depository shares are traded on the NYSE
Formerly listed on the LSE (London Stock Exchange)
The Stock Sector
BHP (formerly BHP Billiton) was founded as the Broken Hill Proprietary Company in 1885. It is a global natural resource Conglomerate, operating in at least 15 countries and specializes in the extraction of,
- Iron ore,
- Petroleum, and many other vital minerals.
Broken has its headquarters in Australia, and is the largest corporation in that country. It is undisputedly one of the two Mining Juggernauts, only second to Glencore ($GLEN)
BHP has strategic mineral assets largely in Australia and the world over. BHP has also diversified into the transport and engineering sectors.
Recent News on BHP
The Aussie miner has been struggling to perform owing to various reasons, the key of them being geopolitical tensions.
BHP has consequently halted all operations in Russia, and has equally severed all commercial arrangements in the country.
Iron ore prices have dropped significantly, bringing down shares of companies exploiting the resource. China, which is the major importer of iron ore has been on lockdown due to Omicron fears and a small number of cases.
The BHP share price has generally been trading lower, but has managed to sustain occasional stock price spikes.
Current Position of BHP
BHP has so far not met the expectations of the market. However, many investors believe its fortunes are set to change due to a long-anticipated merger with the petroleum group Woodside (ASX: $WPL).
A massive pay-out of about $44B to shareholders is expected as a result of the deal.
The merger is estimated at around $40B, and was one of the largest mergers and acquisitions in 2021. The deal is to be completed in 2022.
With Russian oil and gas cut off from the market, oil equities such as BHP could head for a wild run as the price is predicted to rise.
Other analysts hold a contrarian view and anticipate oil prices will revert to previous market levels, down from the current all-time highs seen over the last few weeks.
Copper is a key industrial metal to watch in trying to understand the fate of the commodities market. It has been down through the year and trades at the same levels today as it had done a decade ago.
BHP has strong interests in copper and looks to capitalize in the global supply chain.
BHP stands strong at the moment with a market capitalization of A$228.72B. Its major competitors include Rio Tinto, Vale energy, Peabody, to name but a few. ($RIO $VALE $BTU)
Coal is another frontier that BHP stands to benefit from. Russia is a leading coal supplier and even though the world is phasing away from fossil fuels, Coal has a much higher energy density and powers large plants.
Coal, accounts for a quarter of electricity production. $BHP has a window to benefit from this expected boom.
Germany, which is another coal powerhouse has transitioned to renewables, but will be forced to rethink its coal exit.
$BHP’s biggest gainer in this coming period will be derived from the electric vehicles market. Threats of hydrocarbons deficiency will push prices higher, and renewables will be the suitable alternative to avoid the increased costs of fossil fuels.
Internal combustion engines require a lot of gas which will be almost unaffordable. A massive exit from ICE to EVs is imminent.
As EV companies like Tesla rally, their suppliers of basic commodities like.
- Iron, and others that are utilized to manufacture the cars will experience corresponding upswings.
$BHP has big stakes in these commodities and is sitting pretty with the push towards clean energy.
The exodus away from fossil fuels will pave way for the development of new energy technologies.
Nuclear energy has received attention recently as a viable solution. Uranium prices are due to soar as a result of geopolitical tensions.
Uranium is used to generate nuclear energy and in the manufacture of nuclear weapons that are the topic of conversation with the current crisis in Ukraine.
In a recent summit, the CEO of BHP, Mark Henry, has stated, that the opportunity in the resource sector is limitless.
He categorically mentioned that to support the energy transition, the world will need twice the amount of copper, four times as much Nickel, and twice the amount of steel production in the next thirty years in order to meet global demand.
The demand for these commodities exceeds supply, and the rallying prices of these minerals is an inevitable outcome. The question is not if, but when will this take place.
BHP has been aggressive in mergers and acquisitions, purchasing numerous corporations around the globe, to the extent which includes hostile takeovers.
BHP Stock Price Chart
As of 18h March 2022, BHP shares were trading at A$46.25 per share. This was an increase of 1.25% from its previous close.
It has been on a day range of $45.79 – $46.46. It has seen a 52-week high of $54 and a 52-week low of $35.56. The total volume of shares is currently at 16.78 million. The P/e ratio is at 9.95.
BHP is still below its peak highs and has room for growth. The share price is somewhat close to its fair value. BHP released strong earnings last year beating the market consensus.
Commodities are still trading at low values and the demand is not as high as supply. Mining stocks like BHP have often been considered a haven that could resist recessive economies.
BHP is the largest stock in the ASX by weight, and has proven that its worthy of this position. BHP still forecasts a significant uptick in demand and this share price could sustain bigger leaps.
Profits for BHP
BHP registered a phenomenal performance in the recent quarterly earnings report. Profits recorded were at $9.7B, up 77% year-on-year. Net income was at $9.44B and underlying EBITDA at around 18.46B.
These profits can be connected to higher commodity prices and the increase in demand from China, which has slowly declined this year due to Omicron’s fears impacting BHP growth.
BHP has crushed all the metrics by at least double digits. Interim dividends were at $1.50, the Net profit margin was 30.63% soaring by 91% over the year. Cash and equivalents were at $12.37B.
The net change in cash was at -$1.44B, but still 30.35% over the year. The dividend yield was at a stunning 10.37%. BHP is well-positioned to attain better profitability in the future.
It’s worth investing in this BHP stock for the dividends alone.
Sentiment on BHP
Many investors have positive views on BHP as a solid corporation. Issues have however emerged on staff treatment in Chile with the worker’s union in the Escondida mine threatening to bring operations to a halt if their issues are not addressed.
Investors have their sights set on commodities as the next big hypergrowth market. Commodities were at record lows in the previous decade, as capital went into other asset classes, such as equities and bonds which are looking pretty grim at the moment as a fundamental shift is due.
As the world’s largest miner, they are likely to reap the lion’s share of profits in the upcoming boom. BHP’s long history has ensured a lot of investor confidence in its stock.
Many agree that it is a long-term hold even if it falters in the short and medium-term. So it might be a good time to invest in BHP stock.
Future of BHP
Is it time to invest in BHP stock? BHP is an exceptional company that you should consider holding in your portfolio. It is a top performer in the market and trajectory will be maintained.
BHP might take a hit as it is relatively tied to commodity prices. Some think that these metals are at a peak high and will fall as the ripple effect of these prices is negatively impacting the market.
Crude oil prices are also predicted to fall from the current record heights.
If BHP and other mining companies take a hit, it will be a remarkable chance for entry. It will likely double in the decade to come which has been described as the decade of the commodity Super cycle.
The reserve life index of petroleum is estimated at 50 years. The hydrocarbon sector will see a few last booms before it eventually runs out.
BHP will sure leverage this position as they have the means to do so.
The reserve to production ratio of all minerals is quite high, apart from Coal which is rapidly declining.
The remaining reserves of base metals is not quantified because they exist in colossal proportions around the world, and will probably take more than a century before depletion.
Resource companies like BHP are therefore likely to be around for a long time to come.
Overall verdict on BHP
Is it time to invest in BHP stock?
BHP is a great stock long-term, but it is still susceptible to market cycles in the short-term. The high commodity prices will likely come down with increased interest rates to curb inflationary pressures.
At this current point in time, resource companies are flying too high and will tank soon. Moving averages indicate a sell at the moment.
BHP is bearish in the short-term but bullish in the medium to long-term. A long-term hold or a selling and buying it in a market dip are superb moves.
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