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Commodity giant BHP sporting some attractive fundamentals

|Includes: BHP Billiton Limited (BHP)

Tim Biggam, TradingBlock  (September 9, 2011, 11:53am CDT)

Symbol Analyst Target Price Target Date
BHP 85.00 December 16, 2011

BHP Billiton (ticker: BHP) is a global mining, oil and gas company headquartered in Melbourne, Australia and with a major management office in London. It is the world's largest mining company measured by revenue and third-largest measured by market capitalization.

BHP has the largest footprint in the international commodity space, with operations worldwide in oil, gas, gold, copper, zinc, iron and other related metals. The stock has dropped nearly 13% from its recent trading range in the 90 area, with the shares now trading around 79.

At these levels, BHP sports a very attractive 9.3 TTM P/E (trailing twelve month price-to-earnings) ratio, especially given its revenue growth rate of nearly 20%, providing a PEG ratio under .5. BHP also has a dividend yield of 2.7%, another metric that is trading at trough levels.

Technically, BHP has some intermediate-term support around the 77.50 level, an area that consolidated and held during the latest selloff. With expectations of 8.55 per share earnings power, and a slight multiple expansion to 10 on a P/E basis, I look for BHP to grind higher towards the 85 level by year end.

Play of the Day

Based on  BHP Billiton's (ticker: BHP) current market price of $76.68 and using a target price of $85.00, a target date of December 16, 2011 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy Jan Call Butterfly +80% 40%
Buy Jan Call Spread +50% 52%
Sell Jan Put Spread +36% 58%
Buy Stock +11% 57%

* Subject to change due to changing market conditions.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.