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Should you buy BHP Billiton Limited at this share price?

Credit: Lucas Walters

BHP Billiton Limited’s (ASX: BHP) share price is currently $19.86, having lost roughly 36% of its value over the last 12 months. By comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has lost just 2.8%, making it one of the market’s worst performing blue chips in that time.

Is this an opportunity?

The jury is still out on whether or not BHP Billiton Limited (ASX: BHP) is a buy right now. On the one hand, The Australian Financial Review quoted veteran mining reporter Trevor Sykes as saying it’s a “red hot buy”, citing the unbelievable dividend yield on offer, while others, including UBS analyst Glyn Lawcock, thinks there’s more pain to come.

While BHP Billiton was a key beneficiary of China’s incredible growth story during the boom years, it is now struggling under the weight of crashing commodity prices.

Iron ore and oil have been hit particularly hard, as have coal and copper, restricting the miner’s operating cash flows and forcing BHP into drastic asset write-downs. In fact, BHP Billiton’s net profit fell an alarming 86.2% during the 2015 financial year and, with further commodity price pressures and the recent disaster in Samarco, Brazil, this year threatens to be another very underwhelming result.

There are also enormous concerns about the miner’s dividend, and whether or not it is sustainable. Management has already made it clear that the company’s balance sheet will take priority, suggesting cuts may be necessary to the dividend in the near future. If (or when) that happens, I don’t expect shareholders will take the news too kindly.

Better opportunities

Investors are inherently attracted to big-name companies when they fall in value, often because they fall under the assumption that they’re too big to fail and that they’re destined to rebound.

BHP Billiton is arguably Australia’s greatest mining company, but with strong headwinds facing the sector as whole, it’s by no means a safe bet today. The shares hit a fresh seven-year low price during yesterday’s session, and could well have further to fall. While there is every chance the miner’s lucrative dividend yield could also be cut, I believe there are plenty of greater opportunities for investors today.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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