BHP Billiton (LSE: BLT) (NYSE: BBL.US) is in the teeth of an emerging markets crisis.
But here are five ways it could still make you rich:
1. Proving resilient.
Global mining giant BHP Billiton generates more than half its earnings from emerging markets, primarily metals-hungry China, which makes it vulnerable right now. Yet also resilient. Its share price is actually up 3% over the past troubled month, and 5% in the last week. The surprise contraction in Chinese manufacturing in January, which showed a PMI reading of 49.6, is certainly cause for concern. I still fret about the Chinese credit bubble and shadow banking system, yet other investors are clearly made of sterner stuff.
2. Smashing production records.
BHP Billiton posted an impressive 10% rise in production in the six months to December 2013. Iron ore production rose 19% and metallurgical coal was up 22%. Volumes are expected to grow another 16% over the next two years, with chief executive officer Andrew McKenzie saying the company’s “productivity agenda is in full swing”. All BHP Billiton needs now is the demand. Figures this morning showing Chinese overseas shipments up an unexpectedly healthy 10.6% in January are a promising sign that it may get it.
3. Keeping costs down.
Given macroeconomic uncertainty, BHP Billiton’s correct strategy is to try to keep a lid on its spending. As the former chief executive of rival miner Rio Tinto found to his cost, there is a heavy price to pay for being too loose with your purse strings (in his case, $14.4 billion of write-downs and more time to spend with his family). BHP Billiton will spend $16.1 billion on capital and exploration in 2014, down from $22 billion last year. This should give it some protection against prevailing headwinds.
4. Through diversification.
The need to cut investment expenditure has to be balanced against the need to grow. BHP Billiton is investing $2.6 billion on developing one of the world’s largest Potash mines, at its Jansen project in Canada. Management has named potash as its “fifth core pillar”, to stand alongside iron ore, petroleum, copper and coal. That’s why I chose this stock over Rio Tinto. It has far greater diversification, while Rio is heavily exposed to a single commodity, iron ore, which delivers 89% of its earnings.
5. By growing steadily.
China notwithstanding, BHP Billiton’s growth prospects look promising. Earnings per share are forecast to rise 14% in the year to June 2014, and 8% the year after. At 13.7 times earnings, the valuation isn’t too demanding (although Rio Tinto is cheaper at 11.3 times earnings). The dividend is growing too, up 4% last year to 116 cents per share. That puts BHP Billiton on a forecast yield of 4.3% for June 2015. This stock could certainly help set you on the road to riches. Just keep an eye on China.