MM switched from batteries materials focused IGO Ltd (IGO) yesterday to iron ore producer Fortescue Metals (FMG) – undoubtedly selling strength and buying weakness, let’s hope our timing proves correct. However today we’ve focused on fellow iron producer BHP, albeit with a healthy diversified smorgasbord of resources under its belt. The “Big Australian” surged over 4% yesterday for 2 major reasons:
- Iron ore was limit up during Asian trade which when combined with the stocks almost 35% fall over recent months leaves plenty of room for the combination of short covering & bargain hunting.
- BHP and Woodside updated the market on their plans to merge their oil & gas assets to form a major global energy company, we like this proposal which looks set to be completed this financial year.
NB Limit up in this instance means the exchange stopped trading because the bulk commodity had rallied too far too fast, very similar to how circuit breakers operate in the US S&P500 futures although its usually on the downside as the exchange tries to mitigate panic.
In simple terms we agree with BHP CEO, Mike Henry, who believes WPL and BHP’s petroleum businesses will be a stronger entity combined which by definition should deliver value to shareholders. We believe BHP is good value under $40, especially if China moves to ease policy further and reinvigorate its economy.
MM remains bullish BHP under $40
Add To Hit List
