BHP Billiton Ltd [ASX:BHP] fell 2.4% this morning to a low of $25.13 per share. The 2.4% drop wiped billions off BHP’s value.
As you might already be aware, BHP Billiton operates as a dual-listed structure. The company is made up of BHP and Billiton. It allows the two companies to merge but still remain as individual entities. The reasons why companies might do this instead of an ordinary merger could be for tax reasons or to maintain their national identity.
As a result, BHP Billiton has exposure to a wide range of commodities like coal, iron ore, copper and petroleum.
But not everyone is happy about BHP’s dual listing. Activist investor Elliott Associates believes BHP Billiton should collapse its dual-listed structure and separate its US petroleum assets, according to the Australian Financial Review.
Elliott Associates’ argument is that investors do not fully appreciate the value of BHP’s petroleum assets. So, by demerging and creating a separate entity where these assets would be held, investors could better value BHP as a whole.
But BHP rejected this proposal this morning, stating:
‘After reviewing the elements of Elliott’s proposal, we have concluded that the costs and associated risks of Elliott’s proposal would significantly outweigh any potential benefit.’
What now for BHP Billiton?
If you’re looking for returns of 50% or more in the next year, BHP Billiton probably isn’t the stock for you. The stock was very attractive in 2016, when it rose more than 40%.
But the stock now trades at more than 40-times earnings. If commodity prices don’t drastically increase, it’s unlikely that BHP will run up another 40% in 2017.
That’s not to say BHP is a bad investment. But if you have a short time horizon, a year or less, BHP might not be the resource stock you want to hold right now.
Yet there are plenty of smaller resource stocks on the ASX that could explode in 2017. Resource specialist Jason Stevenson would know. In his advisory service, Resource Speculator, he’s picked stocks that have run up 142%, 145% and 242%.
To find out more, click here.
Junior Analyst, Money Morning