What a stunning year it has been for the big commodity players. The sector has shrugged off 2015s annus horribilis and seen their share prices rebound sharply. Can investors expect more of the same in 2017?
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BHP Billiton (LSE: BLT) has more than doubled since the lows of mid-January, when its share price briefly touched 580p. Today it trades at 1346p, a rise of 132%. That is the partly due to an elastic-like snapping back after last yearsdramatic sell-off, which once again confirmedour Foolish philosophy that the best time to buy shares is often when everybody else is rushing to sell.
The astonishing thing is that BHP Billitonsrecovery is still showing somelegs, with itsshare price up nearly 10% in the last month, although in this case we can partlythank President-elect Donald Trump and his $1trn reflation campaign pledge. Chinese sentiment has also revived, despitethe countrys ever expanding property and credit bubble, and thishas driven up the price of industrial metals such as coal, iron ore and copper.
Surprise oil play
BHP Billiton is also a sizeable oil producer in its own right, and has benefited from positive sentiment in the run-up to tomorrowsOPEC meeting. However, there is a danger that these hopes could be dashed, with Saudi Arabias energy minister now apparentlydownplaying the importance of cutting a deal.
The company has enjoyed strong tailwinds but theyjust as soon start blowing in amore challenging direction. BHP Billitons rather pricey valuation of 74 times earnings would normally scare the life out of me, but forecast earnings per share growth of 286% in the year to 30 June2017 should reducethatto saner levels. I would approach with caution as recentmomentum cannot continueforever, but then I said that six months ago.
Rio shows Brio
Rio Tinto (LSE: RIO) has shown similar vigour this year, its share price roughly doubling from 1577p to 3114p since cialis mg 20 the dark days of January. Again, itkeeps climbing, up roughly 12% in the last month alone, due to Trump and China.
The miners also deserve much of the credit for this years commodity stock recovery,having worked hard to slash costs, dispose of non-core assets and boost productivity. Yes, all of these were forced on them by events, but they have deliveredwith gusto.
Im alright, Jacques
Chief executive Jean-Sbastien Jacques reckons Rio Tintocan boost cash flow by $5m over the next five years via a new productivity drive, ontop ofnext years$2bn cost-cutting target. Heis now aiming toprioritise value over volume, something I have wanted the miners to do for some time as I was never convinced by their attempts to canadian pharmacy viagra offset falling commodity prices by ramping up production. Jacques even told investors he was prepared to cut iron ore output if it would improve cashflow.
Rio Tinto is no longer cheap, trading at 15.6 times earnings, and the yield is forecast to fall to 3% from todays 5.5%. Forecast EPS growth of a healthy 19% in 2017 suggests it could viagraonline-canadapharmacyrx.com have further to go next year. Lets just hope themacro fundamentals hold, especially in China.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Rio Tinto. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
