Are the BHP and Rio Tinto Limited share prices a bargain?

Credit: Lucas Walters

As shareholders in mining giant BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) will be aware, the companies are dual listed on the ASX and London Stock Exchange.

Given the recent volatility caused for many UK-listed companies by ‘Brexit’, it’s particularly interesting to note their share price movements in recent days.

Over the past five trading days for instance, shares in the London listing of BHP are actually up 5.5%. Meanwhile, the ASX-listed BHP shares are up 1% over the past five-day period.

The solid performance of BHP during the recent turmoil is perhaps a poignant sign that the worst of the fall-out from the commodity bust has well-and-truly past.

52-week lows becoming a distant memory?

BHP hit a 52-week low of $14.06 in January 2016. This arguably marked the bottom for the stock and indeed the bottom of the bear market since the resource super-boom began back in the mid-2000s.

With the share price of BHP appearing to be finding support around the $18 level, it could be time for long-term investors who don’t currently have exposure to resources to consider the merits of the large, diversified miners such as Rio Tinto and BHP.

According to analyst consensus forecasts provided by Reuters, BHP is trading on a financial year 2017 price-to-earnings (PE) ratio of approximately 34 times, meanwhile Rio Tinto is trading on a forecast PE of around 21 times.

Although those PE multiples wouldn’t at first glance suggest that shares in BHP and Rio Tinto are bargains, investors need to account for the near bottom of the cycle earnings and remember that this can be the best time to buy commodity-exposed businesses.

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Motley Fool contributor Tim McArthur 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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