Goldman Sachs names BHP Billiton Limited and South32 Ltd shares as buys

Two of the best performing large cap shares on the market on Monday have been the BHP Billiton Limited (ASX: BHP) share price and the South32 Ltd (ASX: S32) share price.

At the time of writing, the shares of these two mining giants are up 2% and 4%, respectively.

While BHP Billiton has been given a lift from rising oil prices along with Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL), there has also been another catalyst for BHP’s and South32’s move higher today.

Both of these miners were named as shares to buy by Goldman Sachs this morning. Here’s what its analysts have said:

BHP Billiton

According to the broker note, Goldman has upgraded BHP Billiton from neutral to a buy rating and increased the price target on its shares to $35.50 from $30.00. The broker feels that BHP is poised to outperform due to its belief that its cash conversion will improve in the second half. Goldman estimates that BHP will generate an extra US$1.7 billion in free cash flow in the second half compared to the first. Further to this, its analysts estimate that BHP’s shares are trading at a 9% discount to Rio Tinto Limited (ASX: RIO) versus a historic premium of 3%. Goldman expects this gap to close in the near future.


Another note out of Goldman reveals that its analysts have reiterated their buy rating and increased the price target on its shares to $4.10. Like BHP, Goldman expects South32 to generate high levels of free cash flow even based on its conservative commodity price forecasts. In addition to this, the broker notes the recent price increases of alumina and aluminium. These two commodities make up 50% of the company’s EBITDA and have rallied materially higher this month.

Should you invest in both miners?

While my preference remains BHP Billiton, I do think both shares are worthy of an investment right now. Especially if the world avoids a trade war and continues its strong economic growth.

This should ensure that demand for commodities remains strong and prices stay favourable for at least the next couple of years.

Finally, here are three more shares that I would rate as buys.

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Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.

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