BHP Billiton Limited (ASX: BHP) shares have continued their slide today with the stock down 1.2% and acting as a drag on the overall S&P/ASX 200 (INDEXASX: XJO). The stock has now fallen 15.5% over the last six weeks to be trading at its lowest price in more than 12 months.
Before we consider whether the stock is worthy of a place in your portfolio, let's take a look at three reasons the market is so bearish on the stock right now.
- Chinese growth. Aggressive expansion in the world's second largest economy has fuelled Australia's mining boom over the last decade, but that growth is now rapidly slowing down. In fact, most strategists have now given up hope that the nation will grow by its targeted 7.5% in 2014 which is heavily impacting investor sentiment in the sector.
- Iron ore. Despite the declining demand, the world's largest miners are heavily ramping up supplies which is acting as a downward pressure on the commodity's price. Iron ore is now trading at its lowest point in more than five years at around US$77 a tonne with fears it could fall even further.
- Cash Flows. Although BHP Billiton can still make healthy margins at these depressed prices, the rapid decline is still eating into cash-flows. Not only could this impact the miner's overall earnings, but also its ability to return cash to shareholders. As such, investors may be waiting a while longer before they get that share buyback program hoped for.
Buy, Hold or Sell?
I would suggest BHP Billiton is moving into the "Buy" territory at these prices, but I can't help but feel the shares could fall even further in the near term as a result of the heavy volatility facing the sector. As such, I think investors should "hold" whatever shares they own, but wait before buying any more.
