This broker thinks it's time to sell your BHP Billiton Limited & Rio Tinto Limited shares

BHP Billiton Limited (ASX:BHP) and Rio Tinto Limited (ASX:RIO) have had a great run this year, but is it time to sell?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It certainly has been a great year for the shareholders of mining giants BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

Thanks largely to rising commodity prices the shares of these two miners have risen by a solid 30% and 17% respectively year to date.

But is it time to lock in these gains and focus on other areas of the market? According to analysts at Citi it is.

A research note out of the global investment bank this morning reveals that its analysts have downgraded both BHP Billiton and Rio Tinto to sell ratings.

The reason for the downgrade is down to Citi's bearish view on commodity prices in the next 12 months. They expect a significant pull back in bulk commodities at the end of the year and through to 2017 on the back of increased supply and slowing demand.

Late last month the Fairfax press reported that Citi was forecasting iron ore prices to fall to US$45 a tonne in 2017 and US$38 a tonne in 2018. Whilst a lot can change between now and then, at this point in time I would have to agree with this view.

The expected increase in supply from both Australia and Brazil is likely to put significant pressure on prices, especially if the strong demand from China is not sustained. If prices do drop then I expect profits will be squeezed and the share price may drop noticeably lower.

Unfortunately I'm also quite bearish on oil prices. Although oil prices have had a good run recently, the proposed agreement by OPEC to cut production is far from a certainty. There are a lot of doubts floating around the market at the moment and I wouldn't be at all surprised to see the agreement fall through.

Even if it did go ahead, increased production from the United States could potentially counter any cuts that OPEC makes and hold prices down.

So right now I would suggest investors follow the advice of analysts at Citi and lock in those gains today. In my opinion there are a number of areas of the market with strong growth prospects that investors would be better focusing on.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »