Are BHP (ASX:BHP) shares a compelling opportunity in the decarbonisation era?

A range of metals are seeing growing demand in the global push towards electrification

| More on:
A green-caped superhero reveals their identity with a big dollar sign on their chest.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

BHP Group Ltd (ASX: BHP) shares are enjoying a good week.

On the back of rising iron ore prices, the BHP share price is up 5% since Monday's closing bell.

The mining giant's future is looking to become ever more closely tied to the price of iron ore, alongside a range of other metals seeing strong demand, as the world moves away from fossil fuels and towards electrification.

That's because BHP has been divesting its oil and gas segments so it can focus on areas it believes have a much longer horizon.

And that, according to Paul Xiradis, head of equities at Ausbil Investment Management, looks to be a wise plan.

What does a decarbonising world mean for BHP shares?

Xiradis broadly has a bullish outlook for ASX shares. "We do not believe Australian equities are too expensive on average when you consider them in relative terms against where long-term interest rates are sitting, and their forward earnings growth outlook," he says.

According to Xiradis:

The equity market has an implied duration structure which has seen its value adjust as interest rates have fallen to their lows. However, we look at the future earnings growth profile for equities when assessing if sectors are cheap or expensive.

On a forward EPS [earnings per share] growth view, we believe resources (specifically battery materials, electrification metals and some bulk commodities) … are offering strong potential EPS growth for FY22 relative to value…

Growth trends with a long way to run yet can throw up some compelling opportunities. "There are some compelling thematics and tactical developments that are delivering opportunity in the market based on forward potential earnings growth," he said.

Among the biggest trends is the world's move away from carbon-based fuels in an effort to reduce greenhouse gases, which in turn is driving new demand for a range of metals.

And Xiradis believes BHP shares are well-positioned to benefit:

In resources, the shift towards decarbonisation, which will see significantly more commitment following COP26, is offering compelling opportunities in the electrification and battery materials metals (copper, nickel, lithium and cobalt) – we like BHP as a diversified exposure to these themes.

How has BHP been tracking?

BHP shares have struggled in 2021, alongside the other S&P/ASX 200 Index (ASX: XJO) iron ore miners. The BHP share price is down 10% year-to-date compared to a gain of 11% posted by the ASX 200 in that same period.

Over the past month, BHP is up 2%.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Resources Shares

Three miners looking at a tablet.
Resources Shares

3 ASX mining shares to sell today: experts

These iron ore, coal, and lithium miners have attracted sell ratings from brokers.

Read more »

Miner looks into the distance as he checks a folder.
Resources Shares

Mineral Resources share price plunges as debt weighs on miner

Fundamental issues continue to plague the diversified miner.

Read more »

Three miners looking at a tablet.
Resources Shares

Buy, hold, or sell? Here's what Morgans is saying about these ASX mining stocks

Are these miners buys, holds, or sells?

Read more »

Australian notes and coins symbolising dividends.
Dividend Investing

Why did the Rio Tinto dividend just shrink to 7-year lows?

Rio Tinto just slashed its half-year dividend payout. But why?

Read more »

Iron ore price Vale dam collapse ASX shares iron ore, iron ore australia, iron ore price, commodity price,
Resources Shares

Why this expert is calling time on Fortescue shares

A leading expert delivers his verdict on Fortescue shares.

Read more »

Happy man working on his laptop.
Resources Shares

Prediction: In 12 months this scorching ASX mining stock could turn $1,000 into $1,750

Brokers are impressed with high production forecasts.

Read more »

View of a mine site.
Resources Shares

Core Lithium share price tumbles as investors await Finniss restart

Investors are bidding down Core Lithium shares today. But why?

Read more »

View of a mine site.
Resources Shares

Mineral Resources shares lift off on record results

ASX investors are piling into Mineral Resources shares following the miner’s quarterly results.

Read more »