The South32 Ltd (ASX: S32) share price has fallen today but it is up an impressive 68% in 12 months — outperforming its former owner, BHP Billiton Limited (ASX: BHP).
S32 Share Price Vs. BHP Share Price
Today's fall appears to be nothing more than market jitters. However, the rally over the past year appears to be attributable to the incredible rally in commodity prices.
As a miner and producer of minerals like bauxite, alumina, coal, manganese, nickel, silver and more, South32 has ridden the wave of higher prices.
Fortunately for shareholders, analysts believe the good times can continue. Of the 21 analysts surveyed by The Wall Street Journal, 12 believe South32 shares are a buy at today's prices of around $2.64. Only four analysts have a 'sell' rating on South32 shares. The average price target is $2.97 — a 12% premium.
With a forecast 4% dividend, it's easy to see why the company might also be appealing for income-focused investors.
1 reason NOT to buy South32 shares
Despite their performance over the past 12 months I choose not to own shares of resources businesses like South32, BHP, Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG). I prefer to buy shares of companies that have more control of the price of their products.
For example, 12 months ago, the market believed the resources sector was shot. Commodity prices were down and oversupply concerns were rampant.
Fast-forward a few months and China's enormous fiscal stimulus boosted demand for commodities and their market prices.
The key point here is that as quick as it has come, the stimulus can go. And because of that, I think South32 shares remain a risky proposition, even at today's prices.
Foolish Takeaway
Whenever you want to make an investment you should talk to the people who disagree with you. They'll provide the most insight and critically appraise your idea.
The same can be said when all analysts agree. Be wary.
