BHP Billiton Limited (ASX: BHP) shares are flying.
They're up another 3.7% today at $25.16 a share, putting them on a total return of 16.4% since Tuesday last week. That compares to a 6.6% return for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), which is still a very impressive result for just seven trading days.
Today's surge follows a strong rebound for the company's London-listed shares overnight. BHP Billiton rose 4.9% while fellow iron ore miner Rio Tinto Limited's (ASX: RIO) London-listed shares gained 6.1% after Morgan Stanley raised its stance on the miners to "overweight". This was mostly due to "more stable data from China", according to The Australian Financial Review.
Indeed, many investors are now starting to wonder whether the resources sector has finally found a floor. Commodity prices have fallen drastically in recent years but appear to have stabilised more recently, with iron ore's price remaining surprisingly sturdy despite the recent uncertainty surrounding China's economic prospects.
Meanwhile, oil prices also rebounded strongly on Tuesday night with some economists providing more optimistic outlooks for the resource. Oil and iron ore are BHP Billiton's two most important commodities, so a rebound in these would certainly bode well for BHP's overall earnings capabilities.
Should you buy?
BHP Billiton's shares certainly look more compelling today than they did this time last year, when they traded for nearly $31. Better yet, they're offering a monstrous fully franked dividend yield that investors could have only dreamed of a blue-chip company offering.
In saying that however, investors should also seriously consider the downside risks involved with buying the shares. To begin with, there is no guarantee that commodity prices will rebound in the near future. Iron ore in particular could fall further as China continues to transition towards a consumer-led economy, rather than rely so heavily on infrastructure growth.
With the headwinds facing the Chinese and Australian economies, I would suggest waiting on the sidelines for more definitive signs that a turnaround is underway. That could mean economic growth picking up again in China, or BHP Billiton reporting stronger earnings results in the future.
In the meantime, there are plenty of other great opportunities that are also presenting themselves on the market right now.
