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3 reasons why BHP Billiton Limited has gained ground today

Mining heavyweight BHP Billiton Limited (ASX: BHP) has managed to buck its downward trend today with the stock gaining 7 cents or 0.2% towards the end of the session. In comparison, the S&P/ASX 200 (INDEXASX: XJO) has managed to edge forward just 0.1% for the day.

BHP’s shares have fallen heavily in recent weeks as a result of declining iron ore prices and investor disappointment after the company failed to announce a widely expected share buyback program. There had been a lot of hype surrounding such a program as investors hoped to finally be rewarded for their patience after years of underperformance.

Today’s upwards price movement could be attributed to three things, including…

  1. The market may believe the stock has been oversold. The shares are currently sitting at $36.74, which is 7.5% below their peak at $39.74 recorded almost two weeks ago.
  2. The spot iron ore price rose 0.7% on Friday to US$87.90 a tonne which may have given investors in the sector a glimmer of hope. However, a number of analysts still have it forecast to drop as low as US$80 a tonne in the coming months.
  3. The tumbling coal prices have also impacted BHP’s earnings in recent years. However, there have been signs of prices stabilising, for example some leading coal mining executives believe the worst may now be over. This is supported by comments from Paul Flynn, CEO of WHITEHAVEN COAL LIMITED (ASX: WHC), who recently said he has turned more upbeat on the coal market’s prospects. Coal is of course one of BHP Billiton’s “four pillars”.

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Investors could look at BHP’s recent price plunge as a reasonable opportunity to buy. While I would tend to agree, I am also wary that capital gains from the miner could be restricted over the coming years due to its enormous market capitalisation.

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

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