BHP Billiton Limited (ASX: BHP) has provided one of the biggest share market surprises for 2016.
Early in the new year, the BHP Billiton share price plunged as low as $14.06 with some (albeit unlikely) suggestions it could slip as low as $6.30. Instead, the shares rocketed towards a high of $26.70, while they have since steadied around the $25 mark.
The share price has risen 40% year-to-date, and 76% since hitting that decade-low price in January.
The catalyst for BHP's share price rally has been an unexpected rebound in key commodity prices, including iron ore, oil and coal – all of which are core markets for BHP Billiton. Copper – which is BHP's fourth pillar – has also rallied more recently.
Other companies across the resources sector have also benefited. Rio Tinto Limited (ASX: RIO) has gained 34% year-to-date, South32 Ltd (ASX: S32) and Fortescue Metals Group Limited (ASX: FMG) have gained 153% and 223%, respectively, while Whitehaven Coal Ltd (ASX: WHC) is up a stunning 280%.
Here are three reasons why BHP's impressive run could continue in 2017…
- Resilient commodity prices. One could reasonably expect that BHP's continued dominance is dependent on the ongoing strength of commodity prices. If their current levels are maintained, or rise further, so too could BHP's share price.
- Trump Play. Donald Trump has spoken at length about his ambitions to build more infrastructure. If that eventuates, it could result in a surge of demand for commodities such as those produced by BHP.
- Dividends. If elevated commodity prices continue, and BHP Billiton continues to reduce costs across its business, BHP could be in a better position to grow its dividend again. Such a move would likely be embraced by investors.
Foolish takeaway
BHP's shares could continue to rise in 2017 – particularly if those three factors highlighted above come to fruition. However, commodity prices could also deteriorate – perhaps considerably. For instance, if Donald Trump's growth plans fizzle, or if Chinese stimulus begins to slow. If these scenarios happen, BHP's shares could easily decline from their current level.
Commodity prices have rebounded considerably in 2016, but even a number of industry insiders suggest the rises are not built on solid foundations. As such, I think there are plenty of better places to put your money than BHP.
