I could speculate about why the stock is going down. The SEC recently sent a letter to BHP Billiton Limited (ADR) (NYSE:BHP) inquiring about deliveries of alumina it delivered to Iran in 2010 and whether or not that alumina could be used for military purposes (of course, that was not the case). But postulating that as the reason for the stock being knocked down the stock is a bit of a stretch.
Perhaps a more likely reason would be that BHP Billiton Limited (ADR) (NYSE:BHP)‘s revenue and profits were down 14.1% and 55.8% respectively in the six months that ended in December of 2012. Ouch.
Still the company maintains that it has delivered solid performance in what are tough times for the commodity industry. One big positive I noticed was that BHP Billiton Limited (ADR) (NYSE:BHP) recently was able to erase its working capital deficit.
As for the company’s iron ore operations, its latest filings stated that the company’s production guidance of 183 million tons for fiscal 2013 remains unchanged.
However, while the company sees the global economy strengthening in 2013, it notes that demand for the metal will decelerate as the Chinese economy reaches maturity. Additionally many iron ore producers are taking steps to ramp up production, which will likely lead to lower realized prices for iron in the coming years.
Bottom line
Investors attempting to profit from the world’s most abundant metal have plenty of options available to them. While an increase in supply in the coming years coupled with an eventual deceleration of Chinese demand will not be positive for producers, the future still looks bright.
This paragraph came directly from Cliffs Natural Resources Inc (NYSE:CLF) most recent annual report:
“We continue to expect Chinese steel production to outpace the growth in Chinese iron ore production… Chinese iron ore, while abundant, is a lower grade containing less than half of the equivalent iron ore than the ore supplied by Australia and Brazil.”
To me that statement implies that Australian and Brazilian iron ore is of a higher grade than U.S. equivalents as well. For that reason, among others, I’m more bullish on Vale and BHP Billiton Limited (ADR) (NYSE:BHP) at the moment than I am on Cliffs Natural Resources Inc (NYSE:CLF).
Political and social turmoil in Brazil is hammering almost all stocks from that country right now, offering investors to buy certain companies at incredibly low prices. (Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) anyone?) In my opinion, the world’s largest iron ore producer is a solid investment at a current price of $12.59.
As for BHP, recent poor results have caused Wall Street to send the stock spiraling down. One of the world’s biggest and best companies yielding 4% with a P/E below 10? Yes please! Even JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group Inc (NYSE:GS) are starting to become BHP bulls.
My opinions aside, I don’t think you can go wrong with any of these three. As the world economy presses onward and upward, so too shall these companies.
Fool blogger Ryan Palmer has no positions in any of the stocks mentioned. The Motley Fool does not recommend any of the stocks mentioned. The Motley Fool owns shares of Vale. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Investing in Earth’s Most Abundant Element originally appeared on Fool.com is written by Ryan Palmer.
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