Should you buy and hold BHP for 2014?

It’s been a disappointing year for shareholders of BHP Billiton (ASX: BHP), who have watched their shares rise and fall and rise again throughout the course of the year, to result in just a 1% gain over the last 12 months.

However, with shares having climbed from as low as $30.76 in July to their current price of $37.55, should investors be buying this stock for 2014?


The mining heavyweight’s CEO, Marius Kloppers, stepped down from his position in February to make way for Andrew Mackenzie, who implemented what is known as the “four pillar” strategy, which focuses on iron ore, copper, petroleum and coal assets.

Under this strategy, Mackenzie promised to heavily cut costs across all divisions amidst declining prices and fears of a slowdown in Chinese growth, whilst also improving productivity. This came as investors applied significant pressure for the company to increase its returns to shareholders and focus more on long-term business sustainability.

Meanwhile, Mackenzie also announced that the company would spend US$2.6 billion on its Jansen Potash project over the coming years, which looks set to become the company’s fifth pillar. Demand for the fertiliser ingredient is tipped to climb substantially in the coming years, as the global population soars.

The miner raised a total of US$6.5 billion from asset sales over the year and will focus heavily on maximising cash flow and value from its petroleum assets.


Like other local miners, including Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG), BHP is expanding its iron ore operations despite many analysts forecasting the value of the commodity to fall over the coming year.

While BHP is much more diversified than both of these companies (and therefore not as susceptible to a fall in the value of iron ore), it could certainly have an impact on the miner’s share price. That said, the future of the company’s aluminium, manganese and nickel businesses all remains uncertain, with none expected to recover in 2014, which could act as a drag on overall earnings.

However, as the company continues to improve its productivity measures and decreases its costs whilst also divesting from non-core assets, 2014 could see a rise in profitability as well as share price.

Foolish takeaway

Investors who believe that iron ore prices will remain strong in the short to medium terms might be more attracted to Rio Tinto and Fortescue, which are much more focused on the steelmaking ingredient compared to BHP. BHP is a much more diversified miner and, with a strong management team, would be a safer bet for your portfolio – particularly if you think iron ore will indeed fall in value.

On the other hand, many investors may prefer to remain on the sidelines and wait for a more attractive entry point, given that there are still strong headwinds facing the sector.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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