The Next Big Stock Gainer - Fall 2004: By Mike Swanson I’m...

The Next Big Stock Gainer - Fall 2004: By Mike Swanson


I’m putting shares of BHP Billiton(NYSE: BHP) on the recommended list at today's opening price.

BHP Billiton is the world’s largest diversified-resources company. If you haven’t heard of it, that may be because it is an Anglo-Australian company. Its shares trade on the NYSE as an ADR.

The company exports coal for the steel industry and mines ore, copper, aluminum, and has huge interests in oil, natural gas, nickel, diamonds, and silver.

It has a market cap of $61.4 billion, a P/E of 18.13, and pays a dividend of 1.93%. Its earnings grew by 20% over the past year and analysts are estimating an 83.9% earnings growth for this year and 25.4% for next year.

The fundamentals for this company are excellent. It’s in the natural resources sector – which is seeing rising prices. Gold is only one part of this story. Oil is going up. Natural gas is going up. And analysts are expecting coal to go up 30-40% next year and iron to go up more than 100%. This company is in it all. And it's growing fast.

BHP is on track to increase its oil production by 40% to 180 million barrels by 2008. Its oil and gas operations make up 34% of its earnings.

BHP also has a share buy back program and is planning on buying 180 million shares over the next 12 months.

What is more it is also a play on the China growth trend. China is just emerging as an industrial economy. The demand for energy in China is only beginning, with the country experiencing constant brown outs in its major cities.

According to the International Business Report, over 80% of China is experiencing energy outages. Not only is the country using more and more oil, natural gas, and coal, but is going through a construction boom to create more power plants, which is putting a strong bid under steel prices.

According to the Wall Street Journal, BHP is poised to profit from the China energy crisis:

“As long as oil and natural-gas prices stay high, coal will remain an attractive alternative for fueling electricity plants. China and the U.S. are already ramping up development of new coal-burning plants. Their construction could help ensure stronger long-term demand.”

“Meanwhile, some analysts believe coal will get a second wind from an unlikely source: Chinese steelmakers. Most analysts had expected China's steel production to fall significantly after the government tightened credit in the sector earlier this year.”

“But the industry hasn't slowed as much as they expected. Moreover, it is becoming evident that the tightening is targeted at small, inefficient producers. Analysts say some large Chinese steel companies have been told recently they should plan to go ahead with expansion plans. Steel demand remains robust in the U.S. and other countries.”

“As a result, supplies of coking coal, the type used in steel mills, remain tight.”

“Melbourne-based BHP Billiton Ltd. highlighted this trend earlier in the month by saying it plans to dramatically increase its coking coal production to 100 million tons a year by 2010, from 58 million tons this year.”

“In a presentation to analysts, the company cited its "more robust view of global steel demand," and noted that customers are expanding capacity in India, the U.S. and Russia. Steel capacity is also being added in China, it said.”

“BHP believes global coking annual coal demand will increase to as much as 270 million tons by 2010, compared with about 190 million tons currently.”