BHP Billiton Stock At $19 Per Share

A few days ago, I discussed my process for determining whether a large-cap cyclical stock may be worth purchasing during a low point in the cyclical. The three factors of the test that were most important: what are the current profits (if any) at the current low point, how worse are things expected to get, and can get the debt payments get made during current conditions or the worse expected conditions.

BHP Billiton is now trading at the lowest point since 2004. The stock is now in the teens, with the London-listing BBL trading at $19 per share. After hitting a high of $104 in 2011, investors have not been able to get away from this company first enough. Almost every article that I have read on it has an overwhelmingly negative outlook. I understand why people reach these conclusions–this morning, copper just hit a six-year low and the price of oil is around $33 per barrel. These are tough conditions for all commodities.

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Why Kohl’s Is A Great Value Investment

While a teacher at Columbia University, Benjamin Graham would discourage his students from making the blanket statement, “Stock X is a great investment” or the close cousin “Stock Y is a bad investment.” The reason why Graham discouraged this line of thinking is because it ignores the extraordinarily important role that price plays in determining the expected and actual returns that an investment will generate.

If you’ve been at this site for a while, you are already familiar with the foolish habit of saying things like “Coca-Cola is a great investment” because you know that was not true for those investors that paid over 60x earnings to purchase Coca-Cola stock in the summer of 1998. The returns since then have been 2.69% annualized because the starting valuation of the stock was asinine. Some people mistakenly conclude that this is a repudiation of the notion that Coca-Cola is an excellent company, but rather I find it to be a vindication of the company’s strength that it has been able to deliver positive annual returns over an eighteen year period that witnessed the stock transition from 60x earnings to 20x earnings. The valuation is a third of what it once was, and you’re still almost keeping pace with inflation.

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Wal-Mart Stock In A Long-Term Investment Strategy

When you study Wal-Mart stock as a potential long-term investment, there are two conflicting pieces of evidence you have to resolve: (1) The dominance of Wal-Mart’s historical returns which have been over 20% annualized since 1972 as Wal-Mart has become a mega-firm that makes just shy of $15 billion in profits per year, and (2) the history of American retail reads like the rise and fall of empires because consumer retail “loyalty” isn’t really brand affection but recognition of how efficiency leads to lower prices that save them money. When that status quo changes, people will happily move on to the next offering.

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