scottaruHave a look at BHP's profit growth over the last 4 years...

scottaru

Have a look at BHP's profit growth over the last 4 years and then compare this with the growth of actual sales volume. You will find that most of the profit has been due to increases in the prices of the various commodities they produce. The 2006-07 profits will be based on historically high prices. Future prices can be a lot lower. At the same time costs are rising. The net effect is that profit margins will be squeezed and hence overall profit will fall per unit of production.

The upside is that BHP is ramping up production.

In an economic downturn demand slows or contracts, while the immediate supply side response is to try to maintain revenue by increasing production. In effect the supply side response further weakens commodity prices. The extent to which this happens will vary from commodity to commodity. Ni, a key profit earner for BHP last year, will be badly affected.

I also like the BHP story, but be wary of spruikers.

In the very long term, I think its possible that the current share price could be seen as a bargain so long as Asia etc keeps expanding enough. However, in the medium term (1-3 years) it could be expensive.

DYOR

Loki