One point to consider in the short term. When they report there could be a large US shale gas assets write-down followed by a share buyback to take advantage of the low sp.
Max profit within 2 months - Which stock?
- Thread starter devank
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One point to consider in the short term. When they report there could be a large US shale gas assets write-down followed by a share buyback to take advantage of the low sp.
Yes that is definitely on the cards...unfortunately management didn't do a very good job with acquisitions.
The thing is with every company you get management that occasionally make bad decisions..but if the economics of the business is good and for BHP it is based on the quality of their assets, then future profits will more than likely make up for management errors.
Although, I still think BHP has done the right thing to enter the natural gas market, its just they overpaid. The future for natural gas is bright due to lower costs and being more environment friendly. Even though NG prices are low they have risen over 50% from their recent lows of under $2 to over $3 currently.
Cheers,
Oracle.
Probably start buying around $47 and keep buying more if it keeps fallings at interval of 5% or more until the cash runs out.
Based on current fundamental ratios.
BHP earned about $22B (Net Profit After Tax) last Financial Year. At todays prices you can buy the whole company for $170B. So that is trading at P/E of about 7.72. It has a lazy $10B sitting in its bank accounts. Although, it has long term debt of about $11B. BHP can payoff it's debt using the cash in the bank. Not many companies are in position to payoff it's debt as and when it pleases. No wonder few months ago when BHP went shopping to borrow it could borrow money cheaper than the Australian Government bond rates and we are talking about a Government that is rated AAA. Goes to show that Investors think their money is more safer with BHP than the Australian Government. OUCH!
So you may ask why is it trading at multi-year lows? Well because market thinks China (the country and not you) is going to have a hard lending. They are going to stop growing which will drive down BHP's export earnings in particular iron ore.
People who have been to China and travel there often don't think China is going to have a hard lending. So basically at the end of the day its all got to do with what you think will happen in China and the world in general. Is the world going to need more iron ore, natural gas, coal, copper, petroleum in 5-10years time than it is needing now? If you think it will than BHP will do just fine, but if you think world will require less of the above commodities than BHP is in serious trouble.
I believe in the former scenario and since BHP is the lowest cost producer of most of the commodities it produces (For eg. BHP costs to produce 1 ton of iron ore is $40 bucks). Current spot price is at $120 and the highest it has been is $187. BHP ships over 150 million tons per year
Hence, I think the best days of BHP will be in the future.
Cheers,
Oracle.
Thank you for your detailed and considered analysis of BHP. According to the charts and technical analysis of BHP, right now does not seem to be a good time to enter as it seems to be stuck in a down trend. Where do you see as a good entry point?
I understand some technical analysis but most of my purchase decisions are based on fundamental analysis and the valuations I think are attractive to invest. I started purchasing BHP in the high 33 and purchased more in mid 31. Next target is 30 or just under.
Basically, if it keeps falling I will keep buying until the cash runs out. I know a lot of people don't agree with my philosophy saying its dangerous to try and catch a falling knife. That might be true of stocks in which you have no idea of their fundamentals/financials. Also, how can a stock be more risky at lower price? It should be more risky at higher price assuming the fundamentals don't change. BHP would be risky at P/E ratio of 17 (on last years earnings stock price would be $61) than at current P/E of under 8 and stock price of $32.
I like the value investing approach as it suits my risk profile and it seems to be working for me based on my investments returns over past few years.
Cheers,
Oracle.
Sounds good. I think I will make entry when it dips below 30 and when the whole market drops just like the recent eurozone crisis.
It would be interesting to post our share trading efforts on this forum/thread to track our progress and see whether people's predictions are correct.
How long is your timeframe China? Because mine is few years...I am your buy and hold type of investor
Hope you are around in 5 years time when I report whether my purchases were good or not.
Cheers,
Oracle.
Just do a search back around the GFC and see who what and where,it will all be in this site,because several sold-out ,,were sold out on margin calls,, and sold because they thought the end was near,..2008-2009.
What was the lessons learnt (or taught) with regards to the game and outcomes?
1. Have to be on top of the matter and act quickly if we are aiming for short term gain.
2. This video clip thanks to MIW. I will test this theory once I get some time.
3. Learning about companies isn't an easy task. My level of knowledge is nowhere near enough or personally I will never be able to crack this.
