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Why it could get worse for BHP Billiton Limited shares in 2016

Credit: Lucas Walters

The BHP Billiton Limited (ASX: BHP) share price hit a fresh 10-year low this morning on the back of plunging oil prices. Unfortunately for investors, if this one broker is right, conditions could get even worse for shareholders in 2016.

As highlighted by the Fairfax press today, analysts from Goldman Sachs identified a group of 10 companies on the ASX that it refers to as “long-term laggards” – those that are down more than 20% since 2010 and have failed to deliver an annual return of 15% or more in any year since then.

The names of fellow resources businesses such as Rio Tinto Limited (ASX: RIO) and WHITEHAVEN COAL LIMITED (ASX: WHC) were on the list, as were companies such as Metcash Limited (ASX: MTS) and Ten Network Holdings Limited (ASX: TEN). BHP Billiton was on there too and, unfortunately for shareholders, it isn’t expected to improve next year.

Indeed, BHP Billiton’s shares have fallen 2.3% today to trade at $16.80, but hit a 10-year low of just $16.57 earlier in the session. They’ve fallen nearly 43% since the beginning of the year while they’re down almost 63% over the last five years.

Today’s decline has come as a result of falling commodity prices on Friday. Oil prices fell by more than 5% and are now languishing at levels not seen since the Global Financial Crisis, while iron ore also extended its decline, falling to US$38.30 a tonne, according to the Metal Bulletin. The prices of both commodities are tipped to remain low for some time and could fall even lower over the coming months or years.

Although BHP Billiton is one of Australia’s biggest and most widely-held companies, and also offers a monstrous fully-franked dividend yield, conditions could certainly worsen for the miner from here. There’s a chance the shares could rebound from today’s level, but it also seems like an unnecessary risk to take considering the attractive prices on some of Australia’s other blue-chip shares right now.

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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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