Is BHP a buy in the current economic climate?

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Question asked 28/05/2022

Is BHP a buy in the current economic climate?

Hi James and Team, Is BHP a buy in the current economic climate? In April (approx. the 4th) MM quoted a piece written by UBS that explored periods of high inflation coupled with slowing growth. UBS then dug a little deeper into "sector changes in returns "and I quote MM "UBS found Energy & Materials (watch out Woodside and BHP!), ... see a sharp deterioration in returns". The piece then goes on to mention "stagflation" and how even defensives will lose ground. Today market commentators see stagflation as a risk. Today MM still views BHP as a BUY below $50. Sorry to put you on the spot but could you please elaborate on why MM are more upbeat today than early April. Thanks,

Answer

Hi Jan,

To clarify our view on BHP: we are long the “Big Australian” liking the stock into weakness but we reduced our exposure around $47 in January. As we said in Fridays report we believe BHP is a perfect example of “buy weakness and sell strength” until further notice i.e. we would sell above $50 and buy under $40.

In the bigger picture MM believes there’s a strong possibility that we have entered a super-cycle for commodities which is clearly bullish BHP plus we like their direction moving forward towards potash after the demerger of its petroleum assets.

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BHP Billiton (BHP)

LAST UPDATED 27/05/2022 15:25

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