Are BHP shares a bargain at $19?

BHP Billiton Limited's (ASX:BHP) share price is near its lowest since 2008.

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Shares of BHP Billiton Limited (ASX: BHP) have fallen dramatically over the last 12 months and are currently trading around $19 per share. The share price is down 30% since the beginning of the year, compared to a 3.4% decline for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

At BHP Billiton's current share price, the mining giant is no doubt capturing the attention of many investors. While they're hovering around their lowest price in seven years, they also offer an 8.8% fully franked dividend yield, which is almost unheard of for a blue chip company of BHP's calibre.

While that might be the case however, there are numerous risks associated with an investment in BHP Billiton, even at today's low price.

Commodity prices have fallen hard and that trend is widely expected to continue over the coming years, applying even greater pressure to the miner's earnings potential.

Combined with the expected cash costs associated with the recent disaster at Samarco, Brazil, which involved the catastrophic failure of one of its dams, BHP Billiton could also be forced to cut its dividend.

In fact, according to The Australian Financial Review, JPMorgan has cut its price target on the shares to just $18 whilst also suggesting BHP Billiton will have to cut its dividend by 50% next year to preserve the strength of its balance sheet. When investors react to that news (should it eventuate), shares could fall even lower than JPMorgan's forecast level.

Although the shares might look cheap based on historical standards, don't be fooled (lower case 'f'). Indeed, many investors thought they were cheap when they hit $35 per share, and then $30, and then $25, and the market has managed to catch those investors off-guard each and every time.

Just because they're trading at their lowest price since 2008 doesn't mean they can't fall any further. I'm not a buyer at today's price, and think there are plenty of other great opportunities to take advantage of instead.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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