The biggest mining stock of them all
Resource stocks are the wave of the future thanks to the developing world, says this U.S. advisory, which recommends an Australian giant.
This isn’t the first time we’ve mentioned this, but it’s summer in Australia.
Not that we have anything against winter, of course — that would be un-Canadian.
Still, a few sunny thoughts on a cold winter’s day don’t go amiss. And for investors, there is one very bright Australian idea to consider, according to a top U.S. advisory.
It’s also a very big idea — the largest mining stock in the world.
The Complete Investor is convinced that BHP Billiton (NYSE-BHP) is beginning to look like a hot growth stock.
The advisory was already holding this stock, but in its Income Portfolio. Now it is being shifted into the fast lane, to the Growth Portfolio.
In fact, resource stocks are bulking larger in the advisory’s Growth Portfolio. Among their number are three Canadian stocks.
We’ll see why the advisory likes commodity stocks so much these days — and what stocks it likes a little less — and then tell the story of the biggest mining stock of them all.
Back on track
“While the developed world continues to struggle with some of the harshest economic conditions of the last 80 years, growth in developing economies is largely back on track,” says Mr. David Sandell, writing for the advisory.
China’s GDP is approaching double digits again, and India and Brazil are showing comparable strength. These countries, and many others, will be consuming rising amounts of energy and other raw materials as they leave the global recession behind.
With this in mind, the advisory has been steadily adding resource stocks to its Growth Portfolio. It added Potash Corp. of Saskatchewan (TSX/NYSE-POT) in February.
Another Canadian stock, Agnico-Eagle Mines (TSX/NYSE-AEM) has been on board for over two years. But a third Canadian stock, Silver Wheaton (TSX/NYSE-SLW) has just been added — we dealt with that story a few weeks ago (see Daily Buy-Sell Adviser, December 17).
In the meantime, the same anticipated growth in commodities has prompted the advisory to sell one of the big consumer “stalwarts” in its Growth Portfolio, Procter & Gamble (NYSE-PG).
“In an era of rising commodity prices, just about all manufacturing companies will face rising costs of essential inputs, including both the raw materials used in their finished products and the energy needed to run their factories,” says Mr. Sandell.
Even a big firm like P&G can only past so much cost inflation on to its customers, he adds.
Big fish
If you don’t have big stakes in resource companies, this author tells investors, “you’ll miss out on one of the major money-making and portfolio-projecting trends available in today’s world.”
And you should be concentrating on what this advisory calls the BRACC nations — Brazil, Russia, Australia, Canada and China.
Today, of course, we look under “A” for Australia.
By itself, BHP Billiton, a US$175 billion behemoth, makes up 14 per cent of Australia’s market index. “It’s truly the big fish in resource-rich Australia’s ocean-sized pond,” states Mr. Sandell.
The world’s biggest mining firm has over 100 operations in 25 different countries. It produces a vast array of commodities, including petroleum.
Its greatest sales are in Asia — 43 per cent — and Europe — 25 per cent. More than 20 per cent of its revenue comes from China alone.
In fact, China’s voracious appetite for iron ore has made that commodity BHP’s number one product. In fiscal 2009, it accounted for 20 per cent of the company’s total sales of US$50.2 billion.
Metallurgical coal is next in importance at 16 per cent, followed by petroleum, base metals and energy coal that together weigh in at close to 15 per cent of sales.
When it comes to net profits, petroleum actually accounts for 25 per cent of the take, second only to iron ore. And it has a further advantage, says the author, “serving as a hedge against rising mining costs insofar as these result from higher energy prices.” In short, production’s cheaper when you can supply your own energy.
On Asia’s doorstep
The Australian economy is moving ahead with BHP Billiton. Exports have been jumping, rising for three months in a row. That also caused Australia’s central bank to raise its rates for the third month in a row.
That growth, of course, is based on BHP’s stock-in-trade, the rising demand for commodities. It certainly doesn’t hurt to be on Asia’s doorstep. That’s where the growth is coming fastest.
Mr. Sandell adds in an extra treat for U.S. investors. The Australian dollar is rising against the U.S., as indeed it did this morning. This means U.S. investors will reap greater returns on currency conversions. (At the moment, the loonie sits at 93¢ vs. the Aussie dollar.)
BHP Billiton is trading at close to 20 times forward earnings at $77.71. But that’s not too rich, the author informs us, “given the company’s outlook for sustainable earnings growth in the low double digits.”
The stock yields a little over 2 per cent on a dividend of $1.64.
It may be warmer in Australia than it is here just now, but if things keep heating up in Asia, Aussies and Canucks should both have a very sunny outlook ahead.
|
E-mail this article
Printer-Friendly
