Shares of BHP Billiton Limited (ASX: BHP) have rallied early in today's session, thanks to a strong rebound in iron ore and oil prices overnight. The stock has risen 1.4% to $30.86, which compares to a 0.7% rise for its benchmark, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Iron ore and oil are BHP's two most important commodities, having accounted for more than half of the group's overall earnings in the 2014 financial year. While both commodities have been stuck in freefall mode recently, both enjoyed some relief overnight.
After having sunk below US$47 a tonne earlier in the week, iron ore managed to edge 2% higher to US$48.06 a tonne, according to the Metal Bulletin. Meanwhile, Brent oil jumped almost 1.6% to US$59.04 a barrel as the market became increasingly comfortable with the pending Iran nuclear deal (which could see as many as 30 million barrels of oil hit the market).
Should you buy BHP Billiton?
Despite its sheer size and diversification, BHP's shares remain largely correlated with movements in key commodity prices. Although iron ore and oil enjoyed a miniature rally overnight, investors need to remember that further falls are expected for both commodities over the coming months which could seriously impact the miner's earnings, and therefore its share price.
Given this outlook, investors would be wise to remain on the sidelines until commodity prices level out, or until BHP's shares become too cheap to ignore. Either way, it's looking like it could be a fairly lengthy wait.
