Although BHP Billiton Limited (ASX: BHP) shares have risen slightly today, they find themselves almost 10% down over the last four weeks. While an unexpected capital management decision has played a role in that downwards movement, it is more likely that the plummeting iron ore price is the primary reason behind the stock's rapid descent.
BHP Billiton derives most of its earnings from selling iron ore, which is used as a key steel-making ingredient. The commodity has fallen from US$135 a tonne at the beginning of the year to just US$82 today – a 39.3% decline.
With BHP's shares now trading hands for just $35.84 – down from $39.74 on the eve of its full-year results presentation – is the stock presenting as a good buy? Or is it still too risky for your portfolio?
Should you buy?
BHP Billiton is one of Australia's lowest-cost producers of the red metal, second only to Rio Tinto Limited (ASX: RIO). Even with the commodity's price sitting at just US$82 a tonne, BHP will still be able to turn a profit. However, its margins will be squeezed and this will only worsen should the iron ore price continue to drop as is expected by a number of analysts (some even suggest it will drop to US$75 a tonne over the coming months).
While I would much prefer to be holding shares of BHP Billiton right now compared to other higher-cost miners like Fortescue Metals Group Limited (ASX: FMG) or Atlas Iron Limited (ASX: AGO), I still think BHP's shares could have further to fall in the coming months. As such, I believe investors should hold off from buying right now and should instead wait for a more compelling price.
