City brokers expect BHP Billiton shares to benefit from the improving economic backdrop

4th August 2014

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City analysts are tipping multinational mining group BHP Billiton as share to snap-up as they believe it is well positioned to benefit from the global economic recovery.

While the bread and butter of the Anglo-Australian firm are base metals it also trades in iron ore, copper, diamonds and aluminium as well as oil and natural gas.

The business has not been immune to the troubles which have engulfed the mining sector in recent years – it has endured falling sales and earnings as a result of falling commodity prices, despite production across many commodities reaching record levels.

But while the past year has witnessed its shares edge ahead by 5%, over the past six months investor interest has grown and the stock is ahead by 12%. The market consensus has its stock down in ‘buy’ territory and brokers at both Deutsche and The Share Centre have just reiterated their own upbeat feelings towards the FTSE 100 constituent.

Graham Spooner, investment research analyst at The Share Centre says compared to its peers, BHP Billiton has fared well as a result of its diversification strategy, and pays a good dividend. He notes that recent results showed group production up 9%, with annual records achieved across 12 operations and four commodities. He adds that its management has been cautious about investing in new capital intensive projects and have preferred instead “to squeeze as much as possible out of current productive assets”.

Spooner says: “Like many others in the sector, BHP has experienced management which has recently indicated that capital investment programmes will be restrained going forward to help manage the demand supply imbalances across many commodities. We continue to recommend investors ‘buy’ BHP Billiton as we believe that in the longer term the company remains in a strong position to grow its profits as the global economy recovers. We would suggest investors seeking income and growth opportunities drip feed into the stock, as volatility can be high within the sector.”

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