Could Roger Be Wrong On BHP?
By Peter Switzer, Switzer Super Report
By Peter Switzer founder and publisher of the Switzer Super Report
For those caught in a "will I or won't I go long BHP Billiton" at these levels, the tennis tournament between Roger Montgomery and my fanatical BHP Billiton supporter, who I nicknamed the BHP Insider or BI, continued last week, after Roger appeared on my Sky News Business channel show. Again, he was bagging the outlook for our great mining company.
Clearly, I respect Roger's stock analysis qualities ? that's why he is on my TV program and appears in this newsletter ? but it does not make him infallible.
Also, I have to remind all my subscribers that many experts, such as Roger, could have very different time horizons than you. For example, Roger might be right and BHP's share price falls another $10 for six months ? he did not actually say that ? and that would vindicate his negative view, but in the seventh month, there could be a big rebound and it could go up $15, so the longer-term investor would be very happy with their stick and stay strategy, especially if they dollar-cost averaged at the low point of the share price slide.
Industry outlook
Before unleashing my viewer's view, which I do think is very informed, let's look at the Zacks Industry Rank for the steel industry, which is relevant for the likes of BHP and Rio. It points to an "underwhelming earnings outlook" but it argues "that the eventual pricing recovery will need a reviving economy, stabilization in the Euro-zone and a rebound in construction activity in the developing countries, in particular China, India and South Korea."
Economically speaking, Moody's last week upgraded the economic outlook for India. China remains a question mark but I suspect it will surprise to the high side this year. Meanwhile Europe looks pretty shocking now, but I believe we will see some green shoots as the year progresses ? I believe in QE, which Mario Draghi is trying ? and while South Korea could slow up this year, I think Japan will pick up its growth rate, given the 20% fall in the yen and the double-barrelled fiscal and monetary policies the new prime minister Shinzo Abe is trying.
South Korea's growth outlook has dropped from 3% to 2.3% and the weaker yen has hurt the country's expansion goals. As a consequence, the government is planning to opt for stimulus, which will help my rosier global economic outlook by year's end and rolling into 2014.
Contrarian corner
Now to BI's view on Roger, which is becoming more exasperated, to put it nicely.
"Roger said that McKenzie ? the new boss ? had said that BHP is reducing its maintenance budget, from $22 billion this year to $18 billion next and then down to $15 billion.