Shares in giant miner BHP Billiton Limited (ASX: BHP) are at their cheapest level in 25 years according to research house Maple Abbott as reported in today's Fairfax press.
Although they're only at their cheapest level in 25 years on a book value basis which may be largely meaningless given that the book value of BHP's iron ore and oil assets can be expected to take a substantial haircut over the course of financial year 2016.
Not least at its iron ore operations in Samarco in south eastern Brazil, where operations have recently been all but shutdown after an operating accident which resulted in the deaths of at least 11 people and widespread environmental damage.
BHP Billiton's primary assets in the oil and iron ore space are likely to face book value write downs as a result of tumbling commodity prices and hastily revised assumptions as to the future cash-generating qualities of the given assets.
The company will announce its results for the first half of FY16 in three months' time and any investors buying the stock today on the basis it's the cheapest in 25 years on a book value basis may be in for a shock come February.
Similarly BHP is probably the cheapest it's been in a long time on a dividend yield basis, but an unrealistically high yield is often a sign the market is expecting a dividend cut. Don't be surprised if BHP takes the axe to its dividend come February 2016.
Never forget that markets are forward looking and some historical data is of little worth when assessing an investment case. Moreover, as an investor it often pays to look through the short-term headlines to focus on the long-term prospects of a business and on that basis BHP Billiton and its high cost of capital does not make an appealing investment prospect.
If you're determined to take a punt in the resources sector I would rather look to pure energy plays with strong balance sheets like Oil Search Limited (ASX: OSH) or Woodside Petroleum Limited (ASX: WPL).
Although generally this looks a sector to avoid given the vast amount of superior investment opportunities available.
As an investor it's also important to be prepared for a market crash..
