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Vardy's View: Buy BHP
06/02/2006 12:00 am EST
"The commodities markets came tumbling down in recent trading as Mr. Market reverted back to one of his manic depressive moods," notes global expert Nick Vardy. Despite the setback, he remains bullish on the sector and looks to a new favorite—BHP Billiton.
"The view from my contacts at the London Metal Exchange is that the sharp sell-off in commodities in recent trading was due primarily to short-term profit-taking. The run-up (and consequent correction) in the price of copper was particularly acute. With the price of the red metal up fivefold in the last two and a half years and 40% in the last two months alone, short-term speculators were anxious to lock in profits.
"’Everybody has got a bit jumpy,’ said Mark Mathias, managing director of the Dawnay Day Quantum hedge fund and a former London Junto presenter. Added Mathias: ‘We've seen very sharp rises over the last couple of months on equities and commodities, so it's no surprise it's being marked down a bit.’ Sharp corrections notwithstanding, the fundamental case which has fueled the commodities boom—demand from China and India to build its industrial infrastructure— is still in place.
"In the context of the secular bull market, the sell-off is but a small hiccup. As long as you can stomach the occasional bouts of short-term volatility, commodities remain the "buy and hold" asset class of the next decade. The bottom line? Corrections within secular bull trends like this one are great news because they offer investors yet another bite at the commodities apple.
"The best way to play Mr. Market's current swoon? Australia-based commodities giant BHP Billiton Limited (BHP NYSE). With 37,000 employees working in more than 100 operations in approximately 25 countries, BHP is the world's largest diversified commodities company— and occupies top notch positions in a wide range of commodities businesses. As such, BHP is the:
World's second-largest copper producer
World's second-largest exporter of energy coal
World's third-largest producer of nickel
World's fourth-largest producer of uranium
World's sixth-largest producer of primary aluminum
"BHP also has significant interests in the oil and gas business and engages in the mining, drilling, and processing of iron ore, manganese, diamonds, silver, and titanium. A genuine global player, BHP's businesses stretch out over the US, Australia, Trinidad and Tobago, Pakistan, Algeria, Brunei Darussalam, South Africa, Canada, and the Philippines. With the caveat that commodity stocks in general will likely remain volatile, now is a great time to buy BHP Billiton."
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