Is BHP a good long-term investment?

BHP Group, trading under the ticker BHP on the Australian Securities Exchange, is a powerhouse in the mining world. Known for its vast operations in extracting and processing key minerals like iron ore, copper, and coal, BHP is more than just a big name.

Now, you might be wondering, is BHP a good stock to buy?

Let’s dig into that, shall we? It’s crucial to understand the factors that will guide this decision. So, let’s explore what makes BHP tick and seeThis positions BHP as an attractive investment for those seeking stable, long-term returns from a company strategically aligned with future economic and environmental developments. if it should find a place in your investment portfolio.

Financial Performance

Let’s take a closer look at BHP’s financial health over the past decade, which has been nothing short of impressive. They’ve kept their revenue and profit margins strong, though, like any big player in the mining sector, they’ve seen their share of ups and downs. These fluctuations mainly mirror the shifts in commodity prices—a typical observation in this industry.

Now, focusing on the here and now, let’s talk numbers. BHP’s Net Profit After Tax (NPAT) is expected to see a bit of a dip. UBS predicts it’ll shrink by nearly 30% from a hefty US$13.5 billion in FY24 to about US$9.66 billion by FY28.

Why the downturn? Well, it looks like dropping commodity prices could be the party poopers here.

On the brighter side, BHP’s earnings per share (EPS) tell a story of resilience. With an EPS forecasted at $4.22 for FY24, it’s clear BHP knows a thing or two about creating value for its shareholders—even when economic winds keep shifting.

Let’s not forget about dividends. BHP has been quite generous, sporting a dividend yield of 8.6% as of the latest financial year. Thanks to those high yields and the sweet bonus of franking credits, it’s a pretty attractive deal for shareholders. So, BHP’s commitment to funneling profits back to its investors is as solid as ever.

Market Position and Competitive Advantage

At a towering market capitalization of about $219 billion, BHP isn’t just a heavyweight on the Australian Securities Exchange; it’s also one of the giants in the global mining industry. This massive market cap doesn’t just add a layer of stability to BHP’s operations—it also gives them a hefty amount of clout in the mining dynamics.

Let’s zero in on where BHP makes its money. The company’s bread and butter lie in three core segments: iron ore, copper, and coal. Iron ore tops the list as the chief moneymaker. However, don’t miss the shift that’s brewing—BHP is betting big on copper.

Why, you ask? Well, our world’s growing thirst for electrification and renewable energy solutions is pushing copper into the spotlight. The trend towards sustainable and forward-looking commodities means copper’s star is only going to rise.

Now, about BHP’s competitive edges, first off, their economies of scale are a game-changer. Being one of the big players allows BHP to streamline operations and cut costs, which in turn boosts their competitiveness on the global stage.

Then, there’s their diversified asset portfolio. By spreading their assets across various commodities and geographies, BHP smartly buffers itself against the usual ups and downs in the market and put an effort to increase its market share.

But here’s a little heads-up for the investor here.

Is BHP a good long-term investment

Risks and Challenges

Navigating the choppy waters of commodity prices is a significant challenge for BHP, especially given how these prices directly impact their bottom line. As one of the top dogs in the mining sector, BHP’s financial health is tightly linked to the prices of iron ore, copper, and coal.

You see, fluctuations in these prices aren’t rare; they’re driven by a myriad of factors, from supply and demand shifts to broader economic changes and geopolitical shake-ups. For instance, if iron ore prices drop due to a surge in global supply or dip in demand from key players like China, BHP’s revenue and profits could take a hit. The same goes for copper, where prices might wobble under the weight of policy shifts, trade tensions, or tech advancements.

These are no small beans for BHP. The friction between major economies—think the U.S. and China—can quickly translate into tariffs and trade barriers, potentially stifling BHP’s access to crucial markets and squeezing their profitability. Plus, operating across different countries means BHP has to juggle varied political climates, legal systems, and regulatory frameworks. Any tweak in mining regulations, tax laws, or environmental statutes can rack up costs, dampen operational efficiency, and limit BHP’s ability to either scale up or sustain its operations.

Then there’s the green side of things—environmental challenges and sustainability. These are becoming huge talking points not just in boardrooms but also among the public and investors. BHP has to toe the line with stringent environmental regulations that govern how resources are extracted and waste is managed. Slip-ups here can lead to hefty financial repercussions or, worse, environmental disasters. With growing concerns over carbon footprints and energy usage, BHP’s move towards cleaner, sustainable technologies isn’t just good ethics—it’s smart business.

So, while BHP is steering through these uncertainties, keeping an eye on how they manage these risks can give you better insights into their potential for growth.

But now, since the company is so big, is there any scope left for growth?

Growth Prospects

BHP’s blueprint for growth isn’t just about sticking to the basics; it’s about smart expansion and seizing new opportunities. Through strategic acquisitions and pushing into fresh markets, BHP aims to broaden its product range and beef up its market presence.

Take, for example, their move to acquire Anglo American plc. to boost their stakes in commodities like copper, which is becoming increasingly vital in the renewable energy and electrification sectors. This strategy helps BHP cut down the risks of depending too much on just one commodity, like iron ore, while also placing them in a great spot to tap into the booming demand for ‘green’ commodities. This might just make it the best Australian copper stocks to buy.

Speaking of copper, let’s talk about its bright future. Copper is key for everything from electric vehicles to renewable energy systems, not to mention its critical role in modern industrial applications like data centers and AI technologies. With the world leaning heavily on reducing carbon emissions and ramping up renewable energy use, the appetite for copper is set to soar—and BHP is positioning itself to meet this surge head-on.

But copper isn’t the only commodity in BHP’s growth story. They’re also eyeing significant opportunities with nickel and potash. Nickel is essential for lithium-ion batteries, which are the heart of electric vehicles and energy storage solutions. As the EV market accelerates, so does the demand for nickel, which could spell big wins for BHP.

Meanwhile, potash plays a pivotal role in agriculture as a key fertilizer component. With the global population on the rise and the pressing need for more agricultural productivity, the demand for potash is also expected to climb, offering BHP another channel for growth.

While it’s true that BHP is navigating some tough waters with commodity price volatility, geopolitical tensions, and environmental pressures, their forward-thinking strategies in acquisitions, market expansion, and a keen focus on in-demand commodities like copper, nickel, and potash place them in a strong position for future growth. As we watch the global economic landscape evolve, BHP’s moves could very well define how well they thrive in the changing world of mining and resources.

Investment Analysis

The nature of this industry is inherently cyclical, deeply influenced by swings in commodity prices, shifting global economic tides, and how investors feel about the resources sector at any given time. If you look at BHP share price ASX over the past decade, you’ll see this volatility in action—typical for a company whose fortunes are so closely tied to market fluctuations and economic cycles. Yet, despite these ups and downs, BHP’s stock has shown remarkable resilience, bouncing back from lows hit during major downturns, like the COVID-19 pandemic.

As of May 2024, BHP’s price-earnings (P/E) ratio is sitting at 19.58, right in line with the median of ASX mining companies. This suggests that BHP is priced pretty fairly compared to its peers in the mining industry—it’s neither undervalued nor overpriced. The price-to-book (P/B) ratio, however, is another story. At 3.46, it’s quite a bit higher than the industry median of 1.64, signaling that the market might be giving BHP a bit of a premium, possibly due to the company’s solid assets and growth prospects. Another key metric, the price-to-free cash flow (P/FCF) ratio, comes in at 12.2, which reflects BHP’s ability to generate cash compared to its stock price—a vital sign of health for a capital-heavy business like mining.

When we stack BHP up against industry benchmarks and its rivals, things get interesting. Compared to the S&P 1500 Diversified Metals & Mining Index, which has experienced a negative compound annual growth rate (CAGR) over the past five years, BHP has managed to maintain more price stability. And when you look at direct competitors, you’ll see that BHP often shows similar levels of volatility but stands out by leveraging its large-scale operations and diversified commodity portfolio. This strategic advantage helps BHP manage risks more effectively and seize opportunities during market highs.


So, if you’re weighing whether BHP fits into your investment portfolio, we find that the company presents a compelling case for long-term investment. Our assessment of BHP’s financial health over the past decade reveals a robust track record characterized by strong revenue and profit margins. Despite the inherent cyclical volatility of the mining industry, BHP has managed to maintain financial stability and growth.

Their strategic focus is not only timely but aligns perfectly with global shifts towards sustainable energy solutions.

This valuation and strategic diversification across various commodities, effectively shields the company from risks tied to any single commodity’s performance.

The company’s financial ratios further support this positive outlook. Additionally, a robust dividend yield of 8.6% enhances its attractiveness, offering potentially lucrative returns to shareholders.

This might just make it the best Australian copper stocks to buy.

This positions BHP as an attractive investment for those seeking stable, long-term returns from a company strategically aligned with future economic and environmental developments.