Is the BHP (ASX:BHP) share price a buy in all of this volatility?

Could BHP shares be a worthwhile buy during this market correction?

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Key points

  • The BHP share price has been outperforming the ASX 200 in 2022
  • Iron ore continues to rally higher, helping the potential profit of the business
  • Some brokers still think there could be more upside for the miner this year

The ASX share market is going through a lot of volatility right now. The S&P/ASX 200 Index (ASX: XJO) has dropped 10% in recent weeks. What about the BHP share price? It is actually up around 8% in 2022.

Plenty of other ASX shares have seen a decline this year. Businesses like Xero Limited (ASX: XRO), REA Group Limited (ASX: REA) and SEEK Limited (ASX: SEK) have all seen declines of more than 20% since the start of the year.

How has the BHP share price managed to buck the trend?

Resource businesses can earn profit in different cycles compared to most other ASX 200 shares because the earnings are derived from resource prices (and production) rather than other economic factors that affect most other domestic businesses.

BHP operates in several different resources including iron ore, copper, nickel and coal. It’s planning to soon divest its petroleum business to Woodside Petroleum Limited (ASX: WPL).

Iron ore is typically the main profit generator for the company.

In November 2021 the iron ore price fell to around US$80. But it has rallied to around US$130 since then. During 2021, it was a surprise that the iron ore price went to US$230. It can be very tricky to predict which way the iron ore price is going to go next.

An ongoing higher iron price helps BHP generate higher earnings from its iron division. It’s also getting more investor attention.

What do brokers think of the BHP share price?

Some analysts still like the resources giant, such as Morgans and Macquarie, with both of those brokers rating it as a buy. The Macquarie price target is $51 and the Morgans price target on BHP is $48.60. Both of these brokers recognise the strength of BHP’s iron division.

However, there are other brokers like UBS that are only ‘neutral’ on the mining giant. UBS’ price target is just $37. It notes that the performance for the period to December 2021 was mixed by the business.

Latest quarter

Last week, BHP revealed how it performed for the half-year to 31 December 2021.

It said that iron ore volumes were up 1% to 129.4mt year on year thanks to a strong supply chain performance, increased ore car availability and the continued ramp up of South Flank.

However, one negative, as pointed out by the brokers, was that copper production was weaker. Total half-year copper production was down 12% with lower volumes at Olympic Dam due to the planned smaller maintenance campaign.

Nickel production also dropped 15% year on year for the half, though it was up 21% quarter on quarter because of planned maintenance across the supply chain in the previous quarter.

Unification

Another development that might be impacting the BHP share price recently is the unification of the business.

On 20 January 2022, BHP announced that shareholders had voted in favour of unification. The UK court has also sanctioned the unification.

The unification is expected to complete by 31 January 2022. This will help with deals and also make the administration of the business easier.

Should you invest $1,000 in BHP right now?

Before you consider BHP, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and BHP wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Xero. The Motley Fool Australia owns and has recommended Xero. The Motley Fool Australia has recommended REA Group Limited and SEEK Limited. 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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