The BHP Group Ltd (ASX: BHP) share price has fallen 9.8% since the beginning of August as a ramp-up in US–China trade war and the August reporting season has sent the Aussie miner's shares tumbling.
So, is the BHP share price a bargain buy in September or will it fall further before the year is out?
BHP's full-year earnings result
BHP doubled its full-year profit from last year, reporting a net profit after tax of US$8.3 billion (A$12.2 billion), but still managed to miss analyst expectations.
The Aussie miner's underlying earnings came in at US$9.1 billion ($13.4 billion) once the 2015 Samarco dam collapse costs were stripped out, with iron ore the biggest performer for the group.
Despite the mixed bag of results, BHP paid a record full-year dividend of US$1.33 per share (A$1.96 per share) as the US$10.4 billion (A$15.4 billion) sale of its onshore US oil and gas assets provided a significant cash boost.
Relative value versus its mining peers
Given the similarity between their operations, I'd say Rio Tinto Ltd (ASX: RIO) is the closest comparable company to BHP available on the ASX.
Rio currently boasts a market cap of $33.4 billion, which makes BHP more than 5x larger based on its own $172.2 billion valuation.
However, BHP is currently trading at 15.1x earnings, while Rio Tinto shares have a price-to-earnings (P/E) multiple of just 7.6x – half that of its competitor.
In terms of income, Rio Tinto is paying a 4.5% per annum dividend yield compared to BHP's generous 5.4% per annum distribution.
Clearly it is difficult to split the two, but I think given the size advantage and higher income, BHP shares are not overvalued at the $35–36 per share mark.
Should you buy BHP shares?
While BHP shares may be a buy based on relative value against its ASX mining peers, I think the bigger factor affecting short to medium-term returns is the US–China trade war.
The recent flare-up saw almost all non-gold mining stocks plummet on the ASX and the outcome will be a big catalyst for further share price gains towards the end of 2019 and into 2020.
If the USA and China can reach an agreement of sorts before Christmas, I'd expect to see the BHP share price rocket higher on the prospect of greater Chinese demand and broader global economic growth.
However, given the real chance that this trade war saga drags on into 2020 and there are no signs of an agreement prior to the start of the holiday season, I wouldn't be putting BHP at the top of my buy list in September.
