Stocks For The Long Run: BHP Billiton vs The FTSE 100

Published in Company Comment on 7 November 2012

How has BHP Billiton (LSE: BLT) performed against the market?

If the long-run return on the market is 9.4% (as researchers at Credit Suisse say), investing in shares should be a no-brainer. Somehow, however, all too often our portfolios don't seem to reflect that attractive performance.

This is partly because that 9.4% number is an average derived from 100 years of data. Picking various time periods within that 100 years gives very different outcomes -- and the market almost never actually returns 9.4% in any single year.

Needless to say, unless you're holding a market tracker, your portfolio could have dramatically different results than what the market experiences. If you own a disproportionate amount of winning shares, your returns could be significantly better than the market. On the other hand...

In this series of articles, I'm looking at how individual shares have performed against the FTSE 100 (UKX) during the past 10 years. Today, I'm assessing mining behemoth BHP Billiton (LSE: BLT) (NYSE: BBL.US).

Over the last decade, BHP Billiton's performance has rocketed ahead that of the FTSE 100.

Share price

Source: S&P Capital IQ

Since November 2002, BHP Billiton's shares have had an impressive average annual return of 23.3% -- crushing the FTSE 100's 7.4% annual average (these return calculations assume dividends were reinvested).

Share price is one thing, valuation another. So how has BHP Billiton compared on a valuation basis over the years? BHP has traded on an average price-to-earnings (P/E) ratio of 15.6 over the past 10 years -- not materially more expensive than the FTSE 100's average of 13.

Price-to-earnings ratio

Source: S&P Capital IQ and Thomson Reuters

Of course, one of the main reasons for BHP's outperformance over the past decade was the sharp rise in demand for copper, coal and iron ore from the rapidly growing economies of China and India (among others).

Investors who think BHP looks cheap at current prices need to believe the rapid demand growth of the past decade is repeatable. The sell-off in BHP's shares and the decline in metal prices in the past year would indicate the market sees an end to the natural resource boom. Do you?

Large-caps for the long run

If BHP Billiton isn't for you, you can always consider the eight large caps for the long run spotlighted in "Super-Investor Neil Woodford's Favourite Blue Chips". This exclusive Fool report evaluates the FTSE shares the legendary index-trouncing investor is backing today, and the investing logic behind them.

You can read all about the potential long-run winners Mr Woodford currently favours by downloading the exclusive report today -- it's free!

Are you looking to profit from this uncertain economy? "10 Steps To Making A Million In The Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.

Further Motley Fool investment opportunities:

> Nate does not own any share mentioned in this article.

Share & subscribe


The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

koochak 07 Nov 2012 , 10:14am

BLT is a share with a high beta and an yield that is comparable (or even better) than that of the FTSE 100. So given a generally rising market the outperformance is not surprising.

AndyThailand 07 Nov 2012 , 1:47pm

This article is stating the blindingly obvious for those with just a rudimentary knowledge of what is happening with miners.

At a mere 335 words (omitting the now extremely tedious and tired advert for out-of-date pages about Woodford''s style etc), it is ludicrously short of ideas, analysis and content.

MF, can we PLEASE have either more articles of real substance or less of those which constitute not much more than the pub chat of Daily Mail readers?

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as as opposed to

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.