3 reasons to have faith with BHP Billiton Limited

If you own shares of BHP Billiton Limited (ASX: BHP), you have every right to be upset with how your investment has performed recently.

Following on from years of negative returns as a result of the mining boom slowdown and poor capital management decisions, 2014 had been pegged by many as the year the miner would return to form. In fact, many analysts and stock market commentators had BHP Billiton amongst their favourite stock picks for the year.

With the stock having fallen 9.6% since the beginning of the year, compared to a 3.3% rise from the benchmark S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), it’s clear that success has not transpired.

While many shareholders are likely reconsidering their position in the “Big Australian”, I would suggest that may not be such a good idea right now. Here are three reasons why remaining patient and holding onto your shares might be the best course of action…

  1. Never lose money. Warren Buffett has two rules for investors: Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1. I would suggest there are exceptions to this rule, but believe it is fitting for BHP Billiton. Sure, it’s been a rough couple of months in particular, but the miner’s long-term prospects are still looking bright (particularly as it expands into the potash industry).
  2. Iron ore. One of the big reasons behind the miner’s most recent plunge has been the crashing iron ore price, which is now sitting at a five-year low of $75.38 a tonne. Of all the miners, BHP is the best equipped to cope with these lower prices given its economies of scale and excellent diversification.
  3. Shareholder value. The miner has also planned for a demerger of its non-core assets which it believes will unlock significant shareholder value, and enable both entities to reduce costs further and improve productivity. I tend to agree and think it’s an exciting prospect.

While I would suggest holding onto whatever BHP Billiton shares you own, I wouldn’t necessarily call the stock a great buy right now. There is no way of knowing whether the stock will fall any further in the near-term, but given the bearish outlook for iron ore, I believe investors who remain patient could be presented with an even more appealing opportunity to buy.

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

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