Despite bearish sentiment due to China's slowing demand for natural resources, the big Australian - BHP Billiton (NYSE:BHP) - is bucking the trend and currently sits on a 10.6% gain over the last month ($62.52 on 24 July to close at $69.16 on 20 August. The stock is trading $17.08 below its 52 week high, following a sustained sell-off in April and May, driven primarily by bearish forecasts for commodities demand from China.
The intrinsic value in the company is much higher, and management is looking at how to manage revenue and capital in the long term while investors are focused on the impact of near term events on returns (slowing demand, contagion effects of sovereign debt on the global economy). Even given slowing demand from China, and recent write downs on BHP's foray into US shale gas assets, the underlying share price continues to rise as many analysts and investors forecast a potential redistribution of capital as BHP management looks to potentially shy away from further merger and acquisition activity.
There has been a lot of frustration felt by shareholders in recent years, as to the value of strategic direction applied by CEO Marius Kloppers to the company, as alluded to below in Bloomberg:
The charges mark another test for Kloppers after deals totaling about $200 billion were aborted or rejected in the past four years, including hostile bids for Rio Tinto (NYSE:RIO) and Potash Corp (NYSE:POT) of Saskatchewan Inc. BlackRock (NYSE:BLK), the world's biggest asset manager and biggest holder of BHP's Sydney-traded stock, said in March it had trimmed its holdings, citing the shale deals as a concern.
In fact BlackRock has been quite open about its attitude and potential future strategy for investing in the big miners, which was outlined in an article on the Sydney Morning Herald three weeks ago.
But criticisms of Kloppers can also be a touch unrealistic at times. As CEO of one of the worlds largest diversified miners, he has taken the helm and had to deal with the contagion effects the global financial crisis has had on the world economy, he has sustained year-on-year growth and profit throughput (against a declining share price), and he has tried to look for future value through potential acquisitions to utilize a burgeoning capital war chest. Malcom Maiden from the Sydney Morning Herald wrote further on these issues here.
The challenges BHP faces are not trivial, and the longer term strategic view on direction taken by BHP management should not be under valued. In developing longer term growth, it means investment in large capital projects with potentially long infrastructure lead times. I have written on this previously regarding BHP and Fortescue Metals Group (OTCPK:FSUMF) interests and developments in the resource rich environment of the Pilbara in Western Australia, Chevron Corporation's (NYSE:CVX) Gorgon Project, and BHP's Olympic Dam expansion (of which is a leading program facing delays in capital infrastructure development due to slowing growth from China). Having the longer term strategic vision is important for such large companies, and it is the longer term vision that will reward sustained growth in income and revenue beyond the short term focus of some investors and the '24 hour media cycle'.
So while short term pressures continue (reduced growth from China is still growth), BHP continues to weather the storm better than its biggest competitor , it continues to pay an increasing dividend, and continues to plan in the longer term for growth programs that will sustain future cash flows and capital growth in the share price. President Eisenhower said that "Plans are nothing, planning is everything" - and in that respect perhaps the criticism of Kloppers & Co is short sighted. For me BHP remains a solid blue chip dividend growth stock for investors with a long term view to deploy their own capital, and the current share price offers a good entry point for those who share that perspective.