Could the world’s largest mining company be worth buying?

Julie Brownlee, Fsp Invest, 16 Sep. 2015

Tags: mining, mining company, commodities, bhp billiton, investing in mining companies, investing in commodities,

Commodities have been on a tough journey over the past few years. Prices are at multi-year lows and at the moment, there’s no signs of a recovery.

The downward spiral in commodity prices has dragged mining companies down with it, big and small.

This gives investors with an appetite for risk an opportunity to profit.

Let’s take a closer look…

The case for investing in the world’s largest mining firm

BHP Billiton [JSE:BIL] is the biggest mining company in the world. With a history spanning more than 150 years, an A+ credit rating and a good record of dividends increasing over the years, it may be worth investing in.

The company is currently trading on a handsome dividend yield of over 7% thanks in part to its lower share price. It has a market cap of over R471 billion.

Have a look at the chart below of its share price over the past five years…

Chart of BHP Billiton's share price

You can see its currently trading at levels last seen in 2011. The company is still making money and sits on a price earnings ratio of 15.

The case for investing in BHP Billiton comes down to what you think about commodities.

If you think they’re going to fall a lot more in price, then stay clear. But if you think the price of commodities is starting to bottom out, it could be worth buying, Dominic Frisby in Money Morning UK explains.

But this would mean going against the downward trend the share price is currently in. And this goes against the investing principle of trading with the trend.

Trends can go on for a lot longer than you think they will. And this could be the case for BHP Billiton and commodities.

What could be in store for commodities?

The commodities price index is now trading at levels below the crash lows of 2008. You can see this in the chart below…

Chart of the commodities index

But commodities can’t hit zero. They have to reach a certain point and start to rebound, even though the world’s biggest commodity guzzler China is seeing a slowdown in its economy.

BHP Billiton is trading at a cheap price with a great yield. There’s nothing to say the price won’t fall further and what’s in store for commodities. But if you’re prepared to take a risk, buying BHP Billiton now could pay off as a long-term investment.

So there you have it. Why the world’s largest mining company could be worth buying.

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