Will China's Economic Reforms Benefit BHP Billiton?
After its recent four-day conference, China's ruling Communist Party released a list of reforms, meant to make the economy more responsive to consumer demand.
Greater growth in China will lead to a greater demand for commodities -- as it is the world's largest consumer of many, ranging from copper to coal. Ideally placed to serve this growing appetite is BHP Billiton (NYSE: BHP), the world's largest natural resources company.
Based in Australia, BHP's holdings span the globe. But its biggest customer, by far, is China. That is true for Australia. The state of the Australian economy depends on large part on the trade with the People's Republic.
That fact is also true for many of the world's commodities.
Due to slower growth in China, many commodities have fallen in price. For 2012, the exchange traded fund for copper, iPath DJ-UBS Copper (NYSE: JJC), is down more than 15 percent. Market Vectors Coal (NYSE: KOL) the exchange traded fund for coal, is off by nearly 20 percent for the same period.
Since the first of the year, the exchange traded fund for iron ore, iShares Global Metals (NYSE: MXI), is up less than one percent. Much of that has come from recent market action.
It is much the same story for BHP Billiton, too.
The stock is down almost six percent for 2013. But the share price has started to rally, as China has been registering higher economic growth in recent periods. As a result, BHP Billiton is up more than 8.5 percent for the last quarter of trading.
There is much for long-term investors to like about BHP Billiton.
The profit margin is nearly 40 percent. The return-on-equity is almost 40 percent, too. While the average dividend for a member of the Standard & Poor's 500 Index is around 1.9 percent, BHP Billiton has one 3.31 percent.
That income stream adds to the total return of the stock, which should increase with the new market changes in China that are long overdue.
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