BHP - BHP Group

BSD
Are you actually supporting the Analysts here? HA!

IMO BHP is a classic example analysts getting it completely wrong.... Since May, ABN Amro, MBL et al have been recommending the stock as a screaming buy - the chart says it all - we are 25% off the high in May 06. Not only did they get it wrong on BHP, they were markedly wrong.

I am an accountant who regularly gets paid to construct DCF valuations of companies, etc. Trust me, it's all bull**** - you can make the numbers look any way you want them to look - the only question is what side is paying the bill!

As for the advisor's to the billions, trust me unless you have big $$$$ by the time you hear the story, the people with the real money have already made their cut.

However, its all up to the individual - if you want to trust analysts, you go right ahead - I remember when Sons of Gwalia was a screaming buy according to analysts before the thing topped itself - there are many examples of this. Learn to read the chart, it will let you know what is required.

Ken said:

well i dont know where else to park my money

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It doesn't really take much effort to find good stocks. Nickel still looks good, as does anyone with tin. And Australian gas companies are getting all fired up. As soon as China stops dumping zinc, I think you'll see that make a comeback as well.

reece55 said:

BSD
Are you actually supporting the Analysts here? HA!

IMO BHP is a classic example analysts getting it completely wrong.... Since May, ABN Amro, MBL et al have been recommending the stock as a screaming buy - the chart says it all - we are 25% off the high in May 06. Not only did they get it wrong on BHP, they were markedly wrong.

I am an accountant who regularly gets paid to construct DCF valuations of companies, etc. Trust me, it's all bull**** - you can make the numbers look any way you want them to look - the only question is what side is paying the bill!

As for the advisor's to the billions, trust me unless you have big $$$$ by the time you hear the story, the people with the real money have already made their cut.

However, its all up to the individual - if you want to trust analysts, you go right ahead - I remember when Sons of Gwalia was a screaming buy according to analysts before the thing topped itself - there are many examples of this. Learn to read the chart, it will let you know what is required.

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Thanks for the tip.

A couple of points:

1. Analyst DCFs have been way below price targets for a long time (40%) due to not accounting for much terminal growth and focussing on long term Cu prices of $1.10

2. The variance of price targets to current prices have resulted from sentiment. Despite the apparent ease of judging sentiment from your charts - large clients worry about long term performance and often have massive imbedded capital gains.

Scaring them over a short term dip to knock out a stock which is 10% of their portfolio based on some hedge fund shorting in copper is not a way to create return business.

"Yeah, we missed that $2 dip from $26 to $24, but you had to pay $4 in tax and the stock is back at $28 - by the way, the chart is really bullish now it is $4 higher than we sold and I think we should get back in.... BEEP BEEP BEEP"

3. No analyst is getting a bonus for dodgying up the DCF to smoke their clients - who is paying the bill for the broking analysts to cheat the numbers?

4. SGW blew-up investors (me included) because of problems that were not public until the blow-up. Analysts canot be blamed for not knowing about non-public info.

5. For the amount of chartists ignoring fundamentals who saved money in SGW/HIH etc - there are about 10 broke ones who bought two-bit hyped up rubbish and lost 50% the next week when the rug got pulled. GSE/MLS/GDN/CDU anyone?

6. I wont just 'trust you' about the $$$ etc - I have just a touch of knowledge about the industry mate.


An accounting chartist - the perfect rear vision specialist

BSD
Easy mate, easy..........

All you are pointing out is that you have a different objective to myself. I'm not knocking the way you trade the market! All I was stating was that I didn't agree with your view on analysts. When I responded to Ken, I stated that his decision on his holding should be based on his investment objectives, but that short term sentiment is down and this may drag prices down in the short term. If you asked me fundamentally what I thought, I would say at around $23.50, BHP is at a great price to add to your long term portfolio. I just would prefer to see some positive movement before moving in, thereby balancing fundamental with technical.

Generally, I think most analysts are rubbish, but obviously you have a different view and I respect that. What they don't factor in is sentiment and ok, if you have an investment horizon that is say 5 years long, this would be ok. However, I am a bit younger and for me, I am looking for a quicker move. Once again, this all comes down to your investment objective. Plus, in general, I think many analysts don't understand some of the accounting principles behind the reports they are constructing views on - different accounting policies/interpretations can have a material affect on a company's actual financial position. If we had IFRS in place since the 90's, the mark-to-market requirements of hedging would have meant that analysts would have had a better chance of knowing that SGW was in the poo.

For the record, I am not an idiot - I have never traded GSE/MLS/GDN/CDU - why, because I know its hype because I actually understand fundamentals. Unlike most techies, I think that most Uranium stocks are overvalued. Believe it or not I actually construct GPFR myself for a living - I have "a touch of knowledge myself" as well..... I only trade liquid, top stocks......

I do however retract my view on SGW with regard to analysts - it is not fair to expect an analyst to have knowledge of unexpected events and SGW was certainly the mother of all of these. However, I still think that even for a long term holder, you should set a stop price. A balance of technical and fundamental knowledge is the key to success in my view.

Cheers
Reece

Reece
Somewhat off the topic of BHP, but SGW's hedge book was "known" and well before it disappeared down the gurgler I was a vocal opponent of some very hot rampers on the early chat and posting sites.
Apart from that, anyone looking at SGW's regular reports could see two things: First, its main asset of tantalum had no "figures" reported that enabled an ivestor to determine its per pound sales price/contracts (a bit like BHP and uranium), and; secondly SGW could not actually produce gold for less than it was selling it.
I really don't think IFRS would have stopped SGW's demise, nor - given that few traders seem to read analytical reports - the hype that certain vested interests managed to inject.
Specifically on BHP, I re-entered the stock and have no "floor" price to trigger a sale. If it dips to $10 next year, so be it: The company would have to reinvigorate itself from such a low - something it has done time and again and again and again.
Although diversified industrials may not have fared as well as sector specific producers in 2006, the market has a habit of putting first back to last, and vice versa.

I agree with your view on BHP Rederob. I think it is a bargain and have bought into BHP expecting it to kick back again. I too have no floor price either. If need be i'll hold on to this for a while. If it heads north in the near future i may consider selling it, if not it's worth holding onto.

I hope i'm not making a mistake here.... but i consider it a bargain atm

et al

BSD

4. SGW blew-up investors (me included) because of problems that were not public until the blow-up. Analysts canot be blamed for not knowing about non-public info.

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rederob

Apart from that, anyone looking at SGW's regular reports could see two things: First, its main asset of tantalum had no "figures" reported that enabled an ivestor to determine its per pound sales price/contracts (a bit like BHP and uranium), and; secondly SGW could not actually produce gold for less than it was selling it.

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BHP is kinda, sorta, like this.
If you read the statements, you can see that it is a low return business.
$0.93/$1.00 kinda low, as opposed to say a higher return business such as OFIX @ $16.48/$1.00 [for example]

Like SGW, that couldn't produce below selling price, that warning sign is in place for BHP & RIO, that if commodity prices come off the boil, and stay at the lower ends, Net Profits will fall.

What happens in the Stockmarket when Net Profits fall, and, the share price is near all time highs? Probably nothing good if you are long.

Management should also seriously look at increasing the dividend rather than wasting shareholder capital on share buybacks at inflated prices. The time for buybacks is when the price offers true value, not an opportunity to artificially bolster Net profits/share

jog on
d998

One of the primary reasons that resource producers are such poor long term investments, unless of course you buy them near the bottom of a cycle, and sell them near the top, is the tremendous requirement of capital expenditures on PP&E

BHP has averaged 15%, and last year hit 19%+ replacement [expansion] of PP&E. The compounded growth in CapEx of 30.7% has exceeded the compound growth in COG 15% by a factor of two.

It is only the high spot prices that have predominated in the last 18mths, that has saved the show so to speak. If prices return to historic means, BHP will again test some of the share price lows, as earnings evaporate.

jog on
d998

ducati916 said:

If prices return to historic means, BHP will again test some of the share price lows, as earnings evaporate.

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Absolutely, there is no question of this. So the basic question is, will prices return to historic means?

Ignoring for a moment the jokes about 'this time it is different...' I think there is a case to argue that the mineral commodities will not return to historic means, and indeed have much further to run.

1. There is evidence in nickel for example, that a lot of the easy to mine 'low hanging fruit' may have been scooped out of the earth. Companies are now going after the difficult to refine latterites rather than the sulphides (may be mixed up with details here). With oil, companies are drilling in deeper and more politically risky areas.

I think that this really does point to a step change in the cost of finding and extracting minerals.

2. The often discussed excess liquidity. We really are in some sort of Nash game theory equilibrium. Sooner or later something has to give. What will happen? Calamity on the forex markets? I think people will want to invest in something that has real value (not gold, though it will get a little kick too), but minerals that have value through what we can make with them. Don't forget, the money will still be sloshing around, and at least some consumption demand will exist. I think investors will start hording commodities.

3. Are prices actually high at the moment? Despite the squeals of copper consumers, I think that adjusted for inflation, prices are actually returning to the mean value....if you look at the longer term, and consider they are not infinite resources.

.....

Now getting back to ignoring the 'this time it's different' jokes. Back in the tech boom, many would be arguing along similar lines that I am - latching onto an idea that seems to be self evident, but may look ridiculous in hindsight.

.....

Just a few random thoughts... May all be rubbish of course.

Markrmau.......

I think your post illustrates the junction we are at with respect to the resources sector........ It is very difficult to gauge if commodity prices are too high because of the incredible demand from China/India...... Ask 10 different economists on the future price for any metal and I am sure you would get 10 answers. But you are right in saying that this may be a self fulfilling prophecy - similar views were taken in the 60's - 70's when all commodity prices boomed and we all know where that led to. Granted, we haven't had quite the same level of exuberance we had then, but it's still relevant.

With respect to BHP, I still say let the market do the talking. I mean, if this endless resources gravy train were expected to continue along in the same vein, then why is BHP, the worlds largest diversified miner, 25% off its highs and in a down trend. To argue that BHP is dramatically undervalued is arguing that the market for BHP shares is inefficient. Or how about that it is being dominated by short term investors - this is a stock that has a daily turnover of about $250 Mil and at peak almost $1 Bil - do we really all think this is just day traders! What BHP is worth is exactly what it can be bought on the ASX at any given day, no more and no less.

Rederob and Steven - if, per your posts, you are willing to risk a 60% loss on your capital invested, then I think you need a lesson in capital preservation. I understand the concept of staying the course, but honestly no sensible person would risk more than 50% of their money just because BHP has good credentials. I mean its not like you would get the money back in dividends! Plus, you are effectively missing out on other opportunities on other stocks in different sectors.

Duc, I think you have hit the money on he head re the buy back - if they wanted to return money to shareholders, they should have just paid a higher dividend or paid out a capital return - buy backs are for when your share is trading at half what you think it is worth so you can lap them up at a cheap price and increase EPS per shareholder.

Cheers
Reece

et al

I think your post illustrates the junction we are at with respect to the resources sector........ It is very difficult to gauge if commodity prices are too high because of the incredible demand from China/India...... Ask 10 different economists on the future price for any metal and I am sure you would get 10 answers.

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Actually I disagree, for the simple reason the numbers simply do not stack up correctly.

Let's just quickly discount India as a past & current factor, they may well figure into the future, as their growth has been powered not by infrastructure build, but by technology, and outsoucing from the US, Europe.
Tele-centres and the like, none of which involves a pricing effect within commodities that BHP is active in.

China, has been on a growth explosion for 30yrs+
The 30yr average = 7.8%
That is huge.
Therefore, you would expect to see a steady state, or even a trend reflected within commodity prices, to reflect this steady, sustained, growth explosion in China........not even close.

Have commodities that are produced by BHP, and BHP itself reflected this enormous and sustained demand from China?
The simple answer is again, not even close.

Sure you can argue that China's economy 30yrs ago did not reflect the same absolute demand that it currently exerts, but BHP was also smaller in absolute terms..........in relative terms, you would expect sustained growth demand from China to reflect themselves in commodity prices, and thus BHP's operating results.

No such correlation is suggested within BHP's financial results.

How then can the huge surge in spot commodity prices be explained?
Investor sentiment.
Commodities entered a bullmarket a few years back, and suddenly, possibly 18mths ago entered the retail investors consiousness. Suddenly commodity based stocks were hot, as earnings, leveraged by spot prices, were booming.

What drove spot prices?
ETF's, ETN's, Hedge Funds, Carry Trades, to name the main culprits.
How much money?
The ETF's, most of which were launched, guess what, in the last 18mths, account for approximately $100 billion........a staggering influx of hot money into an asset class [commodities] that lacked the liquidity of the Stock & Bond markets, and this does not even include the cash available to the Hedge Funds. Spot prices exploded.

Of course, all bull markets come to an end eventually. The hot money can flow both ways of course, and selling pressure can replace buying pressure in a heartbeat.

Therefore BHP was the recipient of bulging earnings due to a bullmarket in speculators driving a bullmarket in commodities, not a legitimate bullmarket in fundamental demand from China.

jog on
d998

Who used-up the copper, aluminium, zinc and nickel stockpiles then?

There must be a big warehouse where 800,000tn of copper, 750,000tn of Al, 30,000tn of Ni and 550,000tn of Zn have been hidden by the speculators

Is this also the case in iron and coal?

Were hedge funds to blame for BHP getting double the price of five years ago?

China, India, Brazil, Russia, Eastern Europe and South East Asia are real and are increasing their use of the aforementioned commodities as they grow wealthier each year.

This is an undeniable fact.

Keep buying the dips

BSD

It all becomes clear; you actually buy into efficient market theory. You believe that the market price = fundamental value.

That sentiment, psychology, hedging, arbitrage, momentum, have no influence on market prices............that BHP at $24 really is worth $24, and of course at $30, that BHP was really worth $30

You subscribe hook, line, & sinker that commodity spot prices are indicitative of...............fundamental consumed demand. That price, cannot, under any circumstance become disengaged from value based on consumption.

You were also bullish on tech, when eyeballs were an analysts leading metric of calculating value. I know how much value you place in the analysts and their projected growth figures.

jog on
d998

ducati916 said:

BSD

You were also bullish on tech, when eyeballs were an analysts leading metric of calculating value. I know how much value you place in the analysts and their projected growth figures.

jog on
d998

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I was never bullish on tech - please don't make such assumptions. The only money I lost in the Tech Boom was through opportunity cost from sitting on the sideline.

I cannot hold any value in your projections, because as opposed to analysts, you do not make any. The noise of sentiment is fleeting and provides opportunity.

On reviewing your portfolio - the market, for all of its inefficiencies, appears to value stocks better than you.

How much is FORD worth again?

Back to my other questions:

Where are all those metals?

Which hedge fund manipulated the bulk commods and where are they hiding all that iron ore?

Hi All,

Im a bit of a newbie so would appreciate if someone could help me out...

BHP is up 3.2% in the US and 4.9% in the UK despite oil droping and gold not doing a great deal.

Anyone got any clues as to why ?


Cheers

Dow Jones at close is also up today 72 points which is encouraging for all

Dow 12,514.98 72.82 (0.59%)

bigdog said:

Dow Jones at close is also up today 72 points which is encouraging for all

Dow 12,514.98 72.82 (0.59%)

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good day for BHP holders, should open at around 25.00 (sails sorry i havent got back to you on the explanation-im trying to word the explanation in a way even kennas will understand-hehehehehehe)

Freddy I said:

Hi All,

Im a bit of a newbie so would appreciate if someone could help me out...

BHP is up 3.2% in the US and 4.9% in the UK despite oil droping and gold not doing a great deal.

Anyone got any clues as to why ?

Cheers

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Hi Freddy, gold is just a byproduct for BHP.

Oil, Nickel, Iron Ore, Coal, Aluminium, Diamonds, Uranium are more important.

The rise could be technical buying off support levels, or general market advance. The market's a strange beast.

spitrader1 said:

good day for BHP holders, should open at around 25.00 (sails sorry i havent got back to you on the explanation-im trying to word the explanation in a way even kennas will understand-hehehehehehe)

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Sorry, I don't understand....LOL

Bouncing well of $24, yet again. Making it a stronger support line - but the highs are still getting lower......Maybe it's just going to go sideways for the next year, or 5.....

kennas said:

Sorry, I don't understand....LOL

Bouncing well of $24, yet again. Making it a stronger support line - but the highs are still getting lower......Maybe it's just going to go sideways for the next year, or 5.....

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just making sure you are on the ball young man-and of course as always-you are!