BHP Billiton Stock Price Forecast November 2021 – Time to Buy BHP Stock?

BHP Billiton (BHP) stock has had a turbulent ride in 2021. While the year started off well, the stock has since come under pressure amid the crash in iron ore price. The steelmaking raw material accounts for the bulk of the company’s earnings.

Meanwhile, apart from the macro weakness in commodity prices, which have come off their 2021 highs, some company-specific factors have also dragged down BHP Billiton stock. What’s the forecast for BHP stock and are they a good buy now?

BHP Billiton stock looks bearish on the charts

BHP Billiton stock looks bearish on the charts and has fallen below the 50-day, 100-day, and 200-day SMA (simple moving average). However, its 14-day RSI (relative strength index) is 55 which is a neutral indicator.

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Iron ore prices have tumbled

Seaborne iron ore prices have tumbled amid concerns over a slowdown in China, which accounts for around two-thirds of global seaborne iron ore imports. There have especially been concerns over the health of the Chinese real estate industry amid the still ongoing Evergrande crisis. The Chinese construction industry accounts for the single biggest chunk of global steel, and by its extension iron ore demand.

BHP Billiton recent developments

BHP Billiton has taken several strategic decisions this year. It has announced the merger of BHP Petroleum with Woodside which is expected to be completed next year subject to clearances. According to the company, the merged entity would be among the top 10 independent energy companies globally. However, markets were not too happy with the announcement.

Coal portfolio

BHP has also announced that it will sell an 80% stake in the BMC metallurgical coal to Stanmore Resources Ltd. Edgar Basto, head of BHP’s Minerals Australia business called the transaction “consistent” with the company’s strategy. “As the world decarbonizes, BHP is sharpening its focus on producing higher quality metallurgical coal sought after by global steelmakers to help increase efficiency and lower emissions,” he said in his release.

However, the company is not fully exiting met coal operations and has exposure to metallurgical coal through its BHP-Mitsubishi Alliance venture. Notably, while BHP Billiton has lowered the exposure to fossil fuels, it still retains some of the thermal coal assets. However, it had sold its stake in Cerrejon thermal coal mine to partner Glencore earlier this year.

Notably, coal prices have spiked over the last year amid the demand-supply mismatch and mining companies have been reluctant to let go of the cash cow amid the current pricing environment.

BHP Billiton to shift primary listing to Australia

Meanwhile, BHP Billiton has also announced that it would keep its primary listing to Australia. The company would give away its dual primary listing in London. While the company would lower the expenses related to the dual primary listing, the stock would also see billions of dollars of selling from index funds. BHP, which is among the largest FTSE 100 components would move out of the index as it gives away the dual primary listing in London. As a result, several index funds would have to necessarily sell the stock. Also, a lot of institutional investors whose mandate is to invest in FTSE 100 companies, might have to sell the stock.

BHP stock price forecast

BHP Billiton’s near-term outlook is clouded by the concerns over the slowdown in China. Also, as its earnings and cash flows come down, it would not be able to continue with the current dividend payout. In 2015, the company had given away the progressive dividend policy and moved to a variable dividend.

Wall Street analysts are however reasonably bullish on BHP stock and it has nine buys and five hold ratings. Its median target price is $63.93 which is a 14.3% premium over current prices. The street high target price is $79.5 which is a 42.1% premium over current prices.

Long term forecast looks positive

Meanwhile, the long-term outlook for BHP Billiton looks positive as it aligns the company’s portfolio with the realities of this century. Commenting on the portfolio transformation, BHP’s CEO Mike Henry said during the fiscal year 2021 earnings call that “After implementing these changes, BHP will have a far greater relative exposure to future-facing commodities through some of the world’s largest and most sustainable resources: copper to support unprecedented demand for electrification and renewable energy; nickel for batteries; and potash to support sustainable farming.”

Notably, unlike rival Rio Tinto, BHP Billiton has a strong copper portfolio. It is among the largest copper miners globally and also operates the Escondida mine which is among the world’s largest copper mines. Rio Tinto’s copper plans have been hampered by regulatory problems. It had to exit the stake in the Grasberg mine in Indonesia where Freeport-McMoRan was the majority owner. Its subsidiary Turquoise Hill Resources is developing the Oyo Tolgoi mine in Mongolia. However, the mine has been in frequent controversies.

Copper and nickel

As BHP Billiton exits its fossil fuel business, it could look at acquiring assets in the copper and nickel space. The company is very positive about both these commodities. Vandita Pant, BHP’s Chief Commercial Officer, said at the FT Commodities Asia Summit that “Some of the modelling that we have done showed that in, let’s say a decarbonised world … the world will need almost double the copper in the next 30 years than in the past 30.” She also said that Nickel’s demand would quadruple over the period.

Should you buy BHP Billiton stock?

Given the portfolio actions that BHP Billiton is taking, the company looks well placed to capitalize on the commodity demand from the green energy industry. The stock trade at an NTM (next-12 months) EV-to-EBITDA multiple of 3.9x which looks reasonable. The stock could display weakness in the short-term amid the news flow over the Omicron variant of the coronavirus. However, if BHP falls more from these levels, it would make sense to add this quality mining stock to your portfolio.

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