BHP Group Ltd (ASX: BHP), one of the largest mining companies globally, has faced a challenging 2024. Despite the S&P/ASX 200 Index (ASX: XJO) reaching new record highs, BHP ASX shares have dropped by 17.74% year-to-date.
Figure 1: BHP Group Limited’s Logo
Recent Performance of BHP ASX Shares
BHP’s recent performance has been less than stellar. As of July 30th, 2024, BHP ASX shares are priced at AUD 41.47, reflecting a 1.426% decline for the day, a 2.85% drop over the past month, and a 17.74% year-to-date drop in 2024. This downward trend contrasts sharply with the broader market’s positive trajectory, with many other blue-chip stocks reaching new 52-week highs.
The primary driver behind BHP ASX’s poor performance is the decline in commodity prices, particularly iron ore. After experiencing record prices in previous years, iron ore has seen a significant pullback in 2024, impacting BHP ASX’s revenues and, consequently, its share price.
Figure 2: The performance of the BHP ASX shares over the past few months
The Impact of Commodity Prices
Commodity prices play a crucial role in valuing mining companies like BHP. The decline in iron ore prices has affected not only BHP but also other major miners such as Fortescue Ltd (ASX: FMG) and Rio Tinto Ltd (ASX: RIO). These companies have all experienced sharp drops in value, underscoring the sector-wide impact of falling commodity prices.
However, BHP ASX’s diversified portfolio, which includes future-facing commodities like copper, nickel, and potash, provides some resilience. Additionally, BHP ASX has significantly reduced its exposure to oil and thermal coal, aligning with global trends toward cleaner energy sources.
Dividend Yield and Valuation
One of the attractive aspects of BHP ASX shares is their dividend yield. Currently, BHP offers a trailing dividend yield of 5.57%, which is fully franked. This yield appeals to income-focused investors, especially given the current low-interest-rate environment.
From a valuation perspective, BHP is trading at levels last seen in December 2020. This pricing suggests that the market may have overreacted to the recent decline in commodity prices. It could represent a good entry point for long-term investors, offering the potential for capital appreciation and a steady income stream from dividends.
Long-term Prospects and Risks
Investing in BHP ASX requires a long-term perspective. The company’s exposure to essential commodities positions it well for future growth, particularly as global demand for metals like copper and nickel increases with the transition to solar, hydro, and other renewable energy and electric vehicles.
However, investors should be mindful of the risks. Commodity prices are notoriously volatile, and BHP’s revenues are closely tied to these fluctuations. Additionally, geopolitical factors, environmental regulations, and operational risks are inherent in the mining industry and can impact BHP ASX’s performance.
Conclusion
So, should you buy BHP shares after over 17% drop? While the recent decline is concerning, it also presents a significant buying opportunity for long-term investors. BHP’s strong dividend yield, diversified portfolio, and strategic focus on future-facing commodities make it an attractive option. However, investors must be prepared to ride out the volatility and consider their risk tolerance before investing.
Ultimately, buying BHP ASX shares should be based on a thorough analysis of your investment goals, time horizon, and risk appetite. If you believe in the mining sector’s long-term prospects and are looking for a blue-chip stock with a solid dividend yield, BHP ASX could be a worthy addition to your portfolio.