We recently upgraded our recommendation on BHP Billiton Limited (BHP) to Outperform from Neutral.
We believe BHP Billiton has a competitive advantage based on its diversified portfolio of low cost and high quality assets on the backdrop ofa rise in constructive and automotive demand following an economic recovery.
The company has invested US$9.8 billion toward exploration and development activities as part of their long-term growth strategy. The recent diversification into potash production appears encouraging on the milieu of a rise in demand for potash-based fertilizer.
Conversely, adverse weather conditions and geopolitical risks can impact the company’s financial health. Of late, production of a few metals as well as the petroleum yield dropped dramatically due to the cyclonic monsoon, flood and regulatory delays impacting revenue.
Additionally, the risk of reoccurrence of a global downturn and currency fluctuations remain causes of concern for the stock
Despite a few depressing factors, BHP is well positioned as one of the few big companies supplying raw materials to the global steel industry. It is anticipated that the ongoing industrialization in China, the largest iron-ore importer, and other developing economies including India is expected to drive the long-term demand for its products.
BHP Billiton is one of the world’s largest diversified resource companies with operations spanning over several continents. It operates in mineral exploration, production and processing, oil and gas exploration and development, and steel production and merchandising. The company contests directly with its peers, such as Alcoa. Inc (AA), Vale S.A (VALE).
BHP has a Zacks #1 Rank, which translates into a short-termStrong Buy rating (1-3 months) based on its key investment strategy.
ALCOA INC (AA): Free Stock Analysis Report
BHP BILLITN LTD (BHP): Free Stock Analysis Report
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