Blue-Chip Stocks to Avoid #3: BHP Billiton (BHP)
Click to Enlarge Anyone who has tried to position for a rebound in resource stocks knows the frustrating false dawns that have occurred in recent years.
BHP Billiton (BHP) is a prime example — after rising over 30% in the second half of 2012 (a move that took the stock above both longer-term trendlines and its 200-day moving average), BHP gave that all back, and more, in the first half of 2013. BHP stock has provided yet another head-fake this year, surging in early February before reversing course in the past two weeks.
BHP seems like a stock to buy and hold here — it has a reasonable valuation, a 3.6% yield, and it’s a contrarian play. The problem, of course, is China. Questions about economic growth and credit conditions in the nation continue to plague companies that do the bulk of their business in the country. China’s Purchasing Manager’s Index is sitting at an eight-month low and is hovering just above the 50 level. Even if the country doesn’t suffer a “hard landing,” there still are more shoes to drop with regard to China’s slowing growth — and that means high risk in BHP Billiton, low valuation or not.
Also, BHP stock is moving within range of the $55-$60 level that has served as support for the past five years. There’s still plenty of room before this support line is breached, but the odds are growing that such a breakdown will occur. Be patient with BHP stock — there should be plenty of opportunity for dip-buying before the year is out.