BHP Billiton plc (ADR) (BBL): Can It Outperform Cliffs Natural Resources Inc (CLF)?

Cliffs’ growth fell off a cliff in 2012, as earnings per share dropped from $11.48 to a loss of $6.32 per share. The decline was primarily due to weaker iron ore and coal prices caused by ample supply and moderating demand. Cliffs has already suspended operations at its iron ore pellet plant in Canada, and its Australian mine has much higher costs than the large mines operated by Rio Tinto plc (ADR) (NYSE:RIO) and BHP Billiton in the same region.

I don’t think we’ve seen the end of Cliffs’ troubles, and I believe that despite its size, BHP Billiton plc (ADR) (NYSE:BBL) may offer better growth prospects over the next few years.

Should you buy BHP Billiton or Cliffs Natural Resources?
I originally thought that Cliffs Natural Resources Inc (NYSE:CLF) might be able to benefit from its smaller size to deliver more significant growth than BHP Billiton over the next few years. However, having spent some time looking at the company’s figures, I’m concerned. Although the Cliffs’ U.S. iron ore operations have more competitive cash costs and benefit from a captive domestic market, its Asia-Pacific operations seem outclassed by its lower-cost, larger competitors, and Cliffs’ U.S. coal also looks expensive.

My choice for income and growth would be BHP Billiton, and while Cliffs Natural Resources Inc (NYSE:CLF) may technically offer better value, I think it carries too much risk and debt, and too little potential reward.

2013’s top income stock?
Although BHP Billiton plc (ADR) (NYSE:BBL) has good potential as an income investment, the U.K. utility sector remains one of the best places to find reliable, high-yielding income stocks. However, not all utilities are equal, and some are currently facing serious challenges that could lead to dividend cuts.

The article Can BHP Billiton Outperform Cliffs Natural Resources? originally appeared on Fool.com and is written by Roland Head.

Roland Head owns shares in Rio Tinto but does not own shares in any of the other companies mentioned in this article. The Motley Fool has no position in any of the stocks mentioned.

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