BHP - BHP Group

[Julia]

Re: Why BHP is down?

Isnt it frustrating to see, all your study does not make sense when the market reacts differently? it makes me think if I am analysing the stock correctly or I am missing something.

Your alternative is to change your approach from fundamental analysis to simply understanding the price action. Markets move on sentiment.
You can have the greatest fundamentals in the world, but if market sentiment doesn't agree, the SP will not rise, and you simply will not make money.

Consider outlaying around $30 and buying "How to Profit in Bull and Bear Markets" by Stan Weinstein. This is a very easy to understand introduction to understanding price action and trend following.
When I first read it, it was a light coming on after some time in the murky darkness of FA.

 

[shyl]

Re: Why BHP is down?

Your alternative is to change your approach from fundamental analysis to simply understanding the price action. Markets move on sentiment.
You can have the greatest fundamentals in the world, but if market sentiment doesn't agree, the SP will not rise, and you simply will not make money.

Thats what i was thinking, my understanding was the sentiment will be positive after the big profit announced. but obviously i was wrong

Consider outlaying around $30 and buying "How to Profit in Bull and Bear Markets" by Stan Weinstein. This is a very easy to understand introduction to understanding price action and trend following.
When I first read it, it was a light coming on after some time in the murky darkness of FA.

thanks. will surely read it.

 

[Garpal Gumnut]

It is interesting that nobody in the "proper threads" has seen fit to comment on BHP for over 2 weeks.

It is looking a dangerous hold for those going long.

The volume has decreased dramatically since the 17th Aug and the price has risen with the RSI in what I call a "walking the tightrope, lets hope I don't fall pattern".

A chart.

gg

 

[OK2]

It is interesting that nobody in the "proper threads" has seen fit to comment on BHP for over 2 weeks.

It is looking a dangerous hold for those going long.

The volume has decreased dramatically since the 17th Aug and the price has risen with the RSI in what I call a "walking the tightrope, lets hope I don't fall pattern".

A chart.

gg

BHP is still undervalued. They are actively pursuing acquisitions and diversifying at the same time. The BIG Australian will never fail!!!

I am still waiting for the stock market to collapse as you have been calling for the last few years. Keep crying Wolf GG.

 

[noie]

It is interesting that nobody in the "proper threads" has seen fit to comment on BHP for over 2 weeks.

It is looking a dangerous hold for those going long.

The volume has decreased dramatically since the 17th Aug and the price has risen with the RSI in what I call a "walking the tightrope, lets hope I don't fall pattern".

A chart.

gg

We all know there is uncertainty with BHP, but 95% of the company is slogging away producing profits.. Lots of them!

people seem to be worried that they are going to make a BAD purchase, maybe overspend, maybe go chasing something just cause they have the extra cash.

 

[Tysonboss1]

BHP is still undervalued. They are actively pursuing acquisitions and diversifying at the same time. The BIG Australian will never fail!!!

I am still waiting for the stock market to collapse as you have been calling for the last few years. Keep crying Wolf GG.

BHP undervalued???

What method are you using in your calculations to value this company. I would think that BHP should be considered "fair" Value at best, and only if you allow a giant premium for being an A grade company.

It's current share price can not be considered cheap when compared to it's net assets or it's earnings, It is actually very much over valued and only holds it's current share price because it is a very good company and people are willing to over pay for it and inturn recieve a smaller return because of the lower risk of it going bust or having earnings disruptions.

 

[OK2]

BHP undervalued???

What method are you using in your calculations to value this company. I would think that BHP should be considered "fair" Value at best, and only if you allow a giant premium for being an A grade company.

It's current share price can not be considered cheap when compared to it's net assets or it's earnings, It is actually very much over valued and only holds it's current share price because it is a very good company and people are willing to over pay for it and inturn recieve a smaller return because of the lower risk of it going bust or having earnings disruptions.

Good day Tysonboss, I have done reasonably well with my investmemts over time. This has been achieved by using common sense and not an Economics degree. There is no calculation to my valuing BHP other than what I feel a major Chinese miner would be prepared to pay for the Company. I hope that day never comes but in saying so BHP remains extremely cheap in my mind.

 

[BSD]

BHP undervalued???

It's current share price can not be considered cheap when compared to it's net assets or it's earnings, It is actually very much over valued and only holds it's current share price because it is a very good company and people are willing to over pay for it and inturn recieve a smaller return because of the lower risk of it going bust or having earnings disruptions.

Really?

Setting aside the irrelevent "net asset" figure (don't think BHP is going to be wound-up any time soon) - the research I am looking at currently has BHP trading at 9 times forecast June 2011 EPS and 8.5 2012.

Hard to see how this is expensive on earnings in lieu of having a downbeat perspective on medium term commodity prices.

Further, it doesn't appear too dear to me considering a 3% yield growing at 10% pa and 30% return on equity with almost no gearing.

 

[Tysonboss1]

Really?

Setting aside the irrelevent "net asset" figure (don't think BHP is going to be wound-up any time soon) - the research I am looking at currently has BHP trading at 9 times forecast June 2011 EPS and 8.5 2012.

Hard to see how this is expensive on earnings in lieu of having a downbeat perspective on medium term commodity prices.

Further, it doesn't appear too dear to me considering a 3% yield growing at 10% pa and 30% return on equity with almost no gearing.

It may be producing a 30% return on equity, but you are paying nearly $40 for $10 worth of that equity. So that brings the 30% return on equity figure down to about 7.5% return on your initial investment.

Look BHP is a fantastic company I hold some of it myself, But I am not kidding myself into thinking it is "undervalued". It is fair valued at best. And will only show solid share price growth if management can continue to alocate capital into new projects generateing 25% return on capital faster than their existing 100+ projects mature and decline and Investors continue to be willing to pay a premium for the stock.

I think they can do it, so I hold,

 

[Tysonboss1]

Good day Tysonboss, I have done reasonably well with my investmemts over time. This has been achieved by using common sense and not an Economics degree.

Wouldn't "common sense" say that before you take an ownership interest in a company you should conduct some sort of analysis of the earning power of the companies assets so that you can justify the price you pay to buy them, Other wise you have no idea what you are paying or what your likly return will be over time.

Remember that every share represents an ownership interest in an actual company/business, and this company/business has an underlying value that does not depend on it's share price.

If you develop the skills of valuing whole businesses/companies you can use this skill to work out what the actual intristic value of an individual share is and then you will know whether the current Market price is higher or lower than it's intrinsic value.

 

[BSD]

It may be producing a 30% return on equity, but you are paying nearly $40 for $10 worth of that equity. So that brings the 30% return on equity figure down to about 7.5% return on your initial investment.

But how appropriate/realistic/relevent are the valuations of assets used to calculate the $10 NAV?

Do you actually believe the NAV of BHP's balance sheet represents the actual prevailing market value of the assets like Escondida, GOM, Olympic Dam or the Pilbara if they were to come up for sale?

Show me a company at discount to NAV and I wil show you a NAV that is cum-downgrade...

 

[noie]

I am reading all your replies to each other and thought i would poke in

I believe you have different ideas of what "value" is, one of you is talking about balance sheet Graham value , the other market "happy to pay" value.

With Mega companies, i don't think you cant treat them like smaller-mid ones, You can't scan the balance sheet and plug info into an ROI formula. (IMHO)

I own BHP shares , I believe people would be happy to pay over 40 for this company , i am worried about where they are thinking of placing their cash.

 

[OK2]

Wouldn't "common sense" say that before you take an ownership interest in a company you should conduct some sort of analysis of the earning power of the companies assets so that you can justify the price you pay to buy them, Other wise you have no idea what you are paying or what your likly return will be over time.

Remember that every share represents an ownership interest in an actual company/business, and this company/business has an underlying value that does not depend on it's share price.

If you develop the skills of valuing whole businesses/companies you can use this skill to work out what the actual intristic value of an individual share is and then you will know whether the current Market price is higher or lower than it's intrinsic value.

It was not to long ago that BHP was in the high 20's and I called it cheap in this thread only to be ridiculed my many like yourself who rely on analysis.

I have a few staff who are uneducated immigrants whose paper value is considerably more than that of people their age who have Diplomas and research or budget everything down to the last cent. My staff invest on instinct and long term. This has created issues for me in the past when my clients have become aware that the bottom of the food chain is worth considerably more than the upper end. The moral of the story is that the share market is fragile and it only takes a minor World event to make it dive, why over analyse, make your money get in and out as you see fit. It works for me.

BHP fair value $50.00au, will see you there Tysonboss and then you can explain it to me again.

Cheers

 

[Tysonboss1]

But how appropriate/realistic/relevent are the valuations of assets used to calculate the $10 NAV?

It is very appropriate/realistic/relevent to use those figures because that shows the nuts and bolts of the companies past capital allocation.

When the company throws around figures stating that they are earning 25% return on capital invested they are talking about a 25% return on a per share figure very much smaller than it shareprice.

Which leads to the fact that even though the assets BHP owns are generating 25% return, the investor investor purchasing the stock at $40 will not earn 25% on their $40 because for their $40 they are only buying true assets worth around $10.

Now paying an extra $30 is not nessarilly a bad thing because you might be happy with a 7.5% return and so it makes sense to buy it at that price, or you may think commodity prices will go through the roof and the assets currently producing 25% ROC will jump to 100% ROC and lead you to earn 25% based on your $40 investment, or you could believe BHP management will grow there current projects from 100 projects to 200projects and assets will grow to $20 and other investors will pay $80 per share.

A share's value is very subjective, But I would suggest that you have an idea of it's underlying value and know what the current premium is and beable to justify paying that much with a rational worldly outcome of how the company is going to generate earnings that will translate to a decent return on your investment over time.

 

[BSD]

Most would prefer to calculate the value of the company based on estimating present value of future cashflows - without refering to NAV at all

The resulting premium to NAV this NPV represents is totally irrelevent, except in the case of potential wind-up. Further, the 'underlying value' of a company is seldom anywhere near NAV. It is what someone else is prepared to pay now, not at some time in the past.

Off topic a bit - but how would you go about setting an 'appropriate' premium to NAV for a company like WTF or Carsales with very low NAV but very steady and rapidly growing cashflows?

Anyway, to say BHP is expensive because it trades at 4 times an accounting construct like NAV is bizzare and you would be in very limited company in using such an argument.

The future is far more important.

 

[Tysonboss1]

Most would prefer to calculate the value of the company based on estimating present value of future cashflows - without refering to NAV at all

Anyway, to say BHP is expensive because it trades at 4 times an accounting construct like NAV is bizzare and you would be in very limited company in using such an argument.

The future is far more important.

Yes, I aggree a companies value is determined by making an assessment of it's likly earning power over time and to a lesser extent it's value of it's assets.

If you look at my orignal post, I simply asked the question of how a certain member came to the conclusion that BHP was under valued, I then made a statement saying that I did not believe it was under valued based on either cashflow or NAV.

I did not say that it is expensive based on the fact it is trading at 4 x NAV, I only made reference to it's NAV because some one said the fact that it produced a 30% return on equity made it good value. I was trying to point out that yes it is good that it earns 30% return on equity, but you have to relate it's earnings back to the price you pay.

 

[Tysonboss1]

BHP is still undervalued. They are actively pursuing acquisitions and diversifying at the same time. The BIG Australian will never fail!!!

I am still waiting for the stock market to collapse as you have been calling for the last few years. Keep crying Wolf GG.

BHP undervalued???

What method are you using in your calculations to value this company. I would think that BHP should be considered "fair" Value at best, and only if you allow a giant premium for being an A grade company.

It's current share price can not be considered cheap when compared to it's net assets or it's earnings, It is actually very much over valued and only holds it's current share price because it is a very good company and people are willing to over pay for it and inturn recieve a smaller return because of the lower risk of it going bust or having earnings disruptions.

Here is the two posts that started this, I was simply asking OK2 what method he was using to come up with the answer that it is Undervalued.

He has since confirmed that his analysis method consists of mainly speculation and guesswork into what he think bigger fools will be willing to pay in the future.

I was simply putting my point accross that you should look a bit deeper into what you are buying if you want your long term returns to be better than mediocre.

But finally as a have already said there is nothing wrong with paying a premium price, you should just be aware that you are doing it and beable to justify it in a rational context based on likly worldly outcomes.

People should not make bold statemnets that a certain company it Undervalued if by their own admission they have not actually performed any sort of valuation on it in the first place.

 

[OK2]

Here is the two posts that started this, I was simply asking OK2 what method he was using to come up with the answer that it is Undervalued.

He has since confirmed that his analysis method consists of mainly speculation and guesswork into what he think bigger fools will be willing to pay in the future.

I was simply putting my point accross that you should look a bit deeper into what you are buying if you want your long term returns to be better than mediocre.

But finally as a have already said there is nothing wrong with paying a premium price, you should just be aware that you are doing it and beable to justify it in a rational context based on likly worldly outcomes.

People should not make bold statemnets that a certain company it Undervalued if by their own admission they have not actually performed any sort of valuation on it in the first place.

Tysonboss what makes your criteria of evaluation set the standard for acceptable comment? Perhaps other people may see your analysis as lacking in fundamentals also. I can only assume that you set the bar height.

When BHP was in the high 20's in the short term past was it also overvalued? Why did Potash Corp jump hugely in value on the takeover bid? It comes back to basics and not analysis, supply and demand.

Tysonboss are you a bean counter (accountant)???

 

[Tysonboss1]

It was not to long ago that BHP was in the high 20's and I called it cheap in this thread only to be ridiculed my many like yourself who rely on analysis.

BHP fair value $50.00au, will see you there Tysonboss and then you can explain it to me again.

Cheers

I would like to ask you one question,

If you decided that you wished to buy one of the local small businesses in your community, and there were about 10 businesses that were for sale that were all being run by staff so they did not require your effort at all, How would you go about deciding which business to buy.

No doubt the first question you would ask is how much is each business making each year and how much they want you to pay for it.

You would realise that there is a big difference between buying a company for $500K that earns $100K/year and buying one for $1,000,000 that also earns $100K per year.

Now if you would conduct this simple analysis on a small business before you invest why not conduct the same analysis on a company you wish to purchase shares in.

 

[Julia]

Just trying very hard not to say that, despite all the above pontifications, the 'value' of a stock is simply what someone is prepared to pay for it.

Sorry.