Mining behemoth BHP Billiton Limited (ASX: BHP) has been one of the companies leading today's stock market rout with its shares falling to a near seven-year low of just $22.82.
The stock plunged as much as 5.3% — far outpacing the 3.8% loss endured by the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) – ahead of its full-year profit results announcement to the market on Tuesday. The miner is tipped to unveil its weakest annual profit in five years amid tumbling commodity prices with both iron ore and oil set to fall even further in the coming months.
Today's falls can also be attributed to yet another heavy sell-off on China's stock market today. The Shanghai index is down 8.7% late in the afternoon in the latest sign that conditions in the world's second largest economy aren't as strong as the Asian nation's authorities are letting on. Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) are also down 5.5% and 14.4% respectively.
Combine weak factory activity with a severely devalued Chinese yuan and piling up sharemarket losses that could soon spill over into the real economy, and prices for commodities such as iron ore and oil could have a long way to fall yet (indeed, both are expected to fall dramatically over the coming months).
Iron ore and oil are BHP Billiton's two most important markets, so it is easy to see why investors have become so bearish on the stock.
Although BHP Billiton remains my miner of choice given its size, diversification and juicy fully franked dividend yield (the stock currently trades on a fully franked yield of 7.4%). I expect the shares themselves could still come under further selling pressure which could erase any income generated from those distributions.
While BHP Billiton could be worthy of a position on your long-term watchlist, commodity prices will need to fall considerably further (or BHP's shares will need to trade significantly lower than their current price) before I consider buying the stock.