Here’s why you should avoid BHP Billiton Limited shares

Credit: Lucas Walters

Shares of BHP Billiton Limited (ASX: BHP) showed signs of life again on Wednesday after updating the market on how it plans to grow. But despite the rebound, investors still have reason to be cautious.

After trading as low as $14.06 earlier in the year, BHP’s shares have rebounded strongly. Indeed, they even traded above $21 at one point less than three weeks ago, leading some investors to assume the worst was finally over.

Source: Google Finance

Source: Google Finance

Since then, however, the shares have actually fallen 12.8%. Iron ore prices are falling once again, and are tipped to drop much further before the end of the year, while oil prices also remain volatile.

To make matters worse, BHP is now a subject of a $58.2 billion lawsuit in relation to the tragic incident that occurred at its Samarco, Brazil, operations late last year. Notably, Vale and the Brazilian government are also subjects of the civil action.

BHP’s shares may have provided some excitement in recent months, and some investors may view this pullback as an opportunity to buy.

But investors should think twice. Although BHP Billiton said its growth plans are not reliant on a rebound in iron ore and oil prices, further volatility will likely have a negative impact on overall group earnings which could drag BHP’s shares down even further.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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