With its shares down a whopping 16.4% since mid-August and trading near a 12-month low at just $33.22, shareholders of mining heavyweight BHP Billiton Limited (ASX: BHP) will no doubt be weighing up their options.
While some will be tempted to sell, others will see this as an incredible opportunity to buy an iconic Aussie company trading at a compelling price.
So what are investors to do? Buy, Sell, or Hold?
The 'Sell' Case
Investing is a long-term game of which patience is a vital quality. However, there comes a time with any stock where you need to reassess your position and question whether things will ever get better.
BHP Billiton enjoyed a magnificent period between 2000 and 2011, in which time the miner's shares rose more than 400% as iron ore prices skyrocketed. But it's been all downhill since then as commodity prices have plunged and poor capital management decisions have come back to haunt the miner.
While iron ore is expected to drop into the US$50s from today's price of roughly US$75 a tonne, now could be a good time to get out before even more pain is unleashed on the miner and its shares.
The 'Buy' Case
Indeed, the best time to buy a company is when it is out of favour with the market. That's certainly the case right now with the 'Big Australian' who investors have cast away for the reasons mentioned above.
Given BHP Billiton's high level of diversification and low cost operations, the miner is far better equipped to cope with this low-price environment than most of its competitors. Should the iron ore price suddenly turn around, BHP could benefit enormously – particularly as it continues to ramp up its production levels.
At $33.22, investors who buy could be doing so at a significant discount to the stock's 52-week high, while it would also give them access to a nice, fully franked dividend – currently sitting at 3.9%.
The 'Hold' Case
Although it requires the least amount of work, holding onto your shares can often be the hardest course of action. Human emotions usually scream for us to 'Do something!', particularly when things aren't going our way. But sometimes, the best thing to do is sit on your hands and do absolutely nothing.
As mentioned above, BHP Billiton is arguably the best positioned miner to cope with these lower prices – even more so than Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), which are far more reliant on iron ore for their earnings.
Although things could certainly get worse in the near-term and the shares could certainly fall further, the long term is looking far brighter and investors who stay for the journey should be rewarded in the coming years.
What should investors do?
As difficult as it is, it seems as though investors would be better off holding onto the shares they currently own – for now, at least. While I wouldn't suggest buying them just yet – considering the iron ore industry remains extremely volatile – selling them also seems like a silly move considering the discount at which they are currently trading.
