BHP Billiton (LSE: BLT) (NYSE: BBL.US) is a company whose future prospects I am very optimistic about.
The main reason for this optimism is the highly encouraging earnings per share (EPS) forecasts that the stock market expects the company to achieve in 2014. Indeed, EPS is expected to grow by 15% in 2014 alone and I think that this rate of growth is very achievable since market forecasts have been cut throughout the year as the emerging market growth story has disappointed.
However, no two years are the same and I think that now could be a good time to buy because many investors are continuing to feel pessimistic about the prospects for mining and resource companies such as BHP Billiton. So, as a contrarian investor, this situation appeals to me greatly and it could be worth topping up my existing holding.
Furthermore, BHP Billiton continues to offer great value for money, despite its excellent growth prospects.
For example, it currently trades on a forward price-to-earnings (P/E) ratio of just 12.3. This represents, in my view, fair value for a company with the diversity and stability that BHP Billiton undoubtedly has. However, when this figure is compared to the FTSE 100 and to the basic materials industry group (to which BHP Billiton belongs) I feel it highlights the large amount of relative value that shares also offer.
Indeed, the FTSE 100 trades on a P/E of 15.5, with the basic materials industry group having a P/E of 11.3. Therefore, BHP Billiton trades on a sizeable discount to the index and a small premium to the sector. I think the premium is deserved due to the reduced risk that comes with the diversity that BHP Billiton offers, while the discount to the index is, in my view, unjustified as BHP Billiton is a quality operation with excellent growth prospects.
In addition, BHP Billiton continues to generate above average returns from its asset base. Return on assets was 8.2% last year, which genuinely surprised me! In fact, I was even more pleasantly surprised when I saw that this figure had been as high as 23.3% over the last 5 years, which shows just how profitable BHP Billiton can be during more prosperous years.
An average return on assets of 13.2% over the last 5 years, if repeated over the next five, will mean that shareholders are likely to be very happy with the performance of the company.