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Is BHP Billiton Limited a buy at today’s share price?

The rebound in BHP Billiton Limited’s (ASX: BHP) share price proved short lived following what was another night to forget for global commodity markets.

BHP Billiton’s shares had defied the market’s bad mood in each of the last two sessions, rising 2.5% and hitting a high of $17.68. Indeed, some investors might have even considered it a sign that BHP’s shares were finally set for a turnaround after falling nearly 36% since the beginning of the year to trade at their lowest prices in more than 10 years.

Unfortunately for them, that doesn’t appear to be the case just yet. BHP Billiton’s share price is once again trading 2.1% lower today, compared to a 0.4% rise for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). They’re currently changing hands for $17.12, down from $32 in March this year.

Indeed, today’s plunge appears to have been caused by further weakness in the iron ore and oil prices overnight. Rio Tinto Limited’s (ASX: RIO) share price has also retreated 0.5% after iron ore fell 1.4% to US$38.52 a tonne, according to the Metal Bulletin, while oil prices are hovering near their lowest levels in six years as well.

Brent oil fell nearly 1% to US$39.72 a barrel, while West Texas Intermediate crude was at US$36.71 a barrel on speculation that OPEC (the Organisation of Petroleum Exporting Countries) will keep the market oversupplied to force prices lower.

Iron ore and oil are BHP’s two most important commodities, and contribute the bulk of its earnings. Lower prices will generate less revenue which will impact both cash flows and earnings. It could also impair BHP’s ability to continue increasing its six-monthly dividend payments to shareholders.

Should you buy?

On Thursday, I noted that: “Some investors called BHP Billiton’s shares a ‘buy’ at $30, then at $25, and then at $20. Who’s to say they’re a buy at $17 today?”

BHP Billiton is ever reliant on commodity prices remaining reasonable to ensure it can grow its earnings. While it is admittedly doing a good job of cutting costs, it is simply not enough to offset the impact of falling commodity prices which could continue to weigh on its performance, and its share price.

While today’s price tag could prove to be a bargain in hindsight, right now it seems there are too many risks and headwinds facing the sector to justify an investment in BHP, especially when there are so many other attractive opportunities also presenting themselves.

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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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