BHP Investment Case

[#1]

Some might think that resource stocks are overvalued, I think not. BHP currently trades at a PE of around 12 - at the low end of its long term average. Yet if you think that earnings are reported up to December, then consider this. The average price received for Brent crude oil (20% contribution to BHP's income) was $80 a barrel. Oil is now trading at over 20% higher than that. So even if it pulls back 20%, it will still be higher than the average price received for oil in the earnings period just reported on. Forward HEPS are forecasted at 2704 - roughly double the current reported earnings. So analysts are forecasting 0% growth for the next 6 months (i.e. income levels on a par with current interims). Iron Ore prices unlikely to come down soon and BHP buying back 5% of its shares.

[THRESHOLD]

Actually BHP is touted as just about the cheapest major asset on the market. In the short term though - it is vulnerable to a pullback in commodites. At current levels she's on a forward PE of about 8 and pretty much ungeared. Cleared mine before results and started buying in again today in the R276's. Hope for a nasty drop to R220-40 and I'll load up on 10K or so extra.

[THRESHOLD]

Actually BHP is touted as just about the cheapest major asset on the market. In the short term though - it is vulnerable to a pullback in commodites. At current levels she's on a forward PE of about 8 and pretty much ungeared. Cleared mine before results and started buying in again today in the R276's. Hope for a nasty drop to R220-40 and I'll load up on 10K or so extra.

[DR_1]

TH - I assume that the 10K refers to 10K additional shares and not CFD's etc

[THRESHOLD]

10 000 shares or instalments depending on the rest of this portfolio. If there is a really bad sell-off I'll look at CFD'S (Maybe around R200ish)

[THRESHOLD]

The problem with committing to this type of counter on a more permanent basis is that it is competing for funds with NETCARE and PIONEER FOODS and a host of other, more conservative (lower beta), high-value growth propositions. Not to mention some tasty small and micro caps.