BHP Stock (NYSE:BHP): An Alternative “Shotgun” Approach to EV Stocks
Stock Analysis & Ideas

BHP Stock (NYSE:BHP): An Alternative “Shotgun” Approach to EV Stocks

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With even the best electric vehicle companies suffering from volatility, investors interested in the future of mobility should consider mining firm BHP. Producing commodities critical to the EV space, BHP stock offers a wide, relevant canvas.

One of the most hackneyed phrases in investing today is that EVs represent the future. While possible, the sector’s sharp losses last year necessitate a “shotgun” approach to the EV rollout, thus bolstering mining firm BHP (NYSE:BHP). By producing the many commodities that this burgeoning industry feeds on, it’s a sensible trade for hardcore EV advocates. I am bullish on BHP stock.

By logical deduction and all other factors being equal, investors banking on the electrification of mobility should target EV enterprises. On the other hand, mining-related investments like BHP stock seem anachronistic and irrelevant. However, not all things stand equally in the EV space. If it were so, a sector leader like Tesla (NASDAQ:TSLA) would not be losing more than half its market value in the trailing year.

As many publications pointed out, EVs simply ring up too steep a price for most consumers. Back in early 2022, Kelley Blue Book stated the average price of a new EV jumped to $62,876. With the pre-pandemic U.S. household income sitting at $69,560, an EV purchase just doesn’t make sense for the average family. That’s problem number one.

Problem number two centers on competitive consolidation. In other words, the world does not need that many EV manufacturers. Admittedly, developments like falling lithium prices bode well for EV upstarts. When factoring in brand reputation and capacities to spark economies of scale, only the largest enterprises command the credibility to facilitate a global EV rollout.

Truly, it’s difficult to filter out winners and losers at this juncture. However, this segues into the beauty of BHP stock. Essentially, with a critical-commodities mining firm, you don’t need to know.

You Can’t Have the Cars Without the Commodities

Peruse the investment scene for EV stocks, and market participants will find no shortage of marketing pitches, basically. From the giants like Tesla to smaller startup enterprises, seemingly everyone seeks to dominate the manufacturing subsegment. However, what makes BHP stock stand out is a harsh reality: you can’t have electric cars without the required commodities.

One of the biggest metals and mining firms in the world, BHP – as it relates to EVs – produces three vital commodities: copper, nickel and metallurgical coal. Regarding the first asset, copper has always been in high demand for its utilitarian properties. Specific to EVs, copper represents an essential component in electric motors, batteries, inverters, wiring, and charging stations.

Second, nickel plays a vital role in the potential mass integration of EVs. According to the Nickel Institute, “The major advantage of using nickel in batteries is that it helps deliver higher energy density and greater storage capacity at a lower cost.” In other words, for EVs to enjoy long-range capacities, nickel will be absolutely critical.

Finally, metallurgical coal might sound like a mundane asset. However, according to BHP’s website, this particular type of coal is an essential ingredient in steel production. Of course, steel will likely remain the preferred material for various body structures due to its incredible utility.

Therefore, if the global EV rollout materializes as anticipated, BHP stock will almost surely rise.

BHP Stock Offers Great Value Despite Recent Rally

Indeed, BHP stock isn’t waiting for the EV narrative to turn decisively favorable. In the trailing year, shares gained 35.8%. Since the January opener, BHP swung higher to the tune of 16%. Such rapid gains tend to make the underlying enterprise overvalued. Fortunately, that’s not the case (yet) with BHP stock.

Objectively, the metals and mining firm remains reasonably valued. Currently, the market prices BHP stock at 8.8 times trailing earnings. In contrast, the sector median stands at 12.9 times. Further, BHP trades hands at a forward multiple of just over 14 times, roughly in line with the sector median.

Moreover, BHP’s price-to-free-cash-flow (FCF) ratio is 6.8 times. This ranks lower than 68.5% of the competition.

Lastly, while hedge fund sentiment for BHP stock slipped negatively recently, these institutional investors bid up shares dramatically since the fourth quarter of 2021. On balance, then, the mining firm appears to be a solid Buy.

Is BHP Stock a Buy, According to Analysts?

Turning to Wall Street, BHP stock has a Moderate Buy consensus rating based on two Buys, zero Holds, and one Sell rating. The average BHP price target is $68.00, implying 4.55% downside potential.

Additionally, on TipRanks, BHP stock has a 9 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.

The Takeaway: BHP Stock is the Unseen Stagehand

Fundamentally, BHP runs in the background, thus preventing the wild upside possible in EV upstarts. However, BHP stock represents a higher-probability success story due to the underlying company’s sourcing of critical commodities. Therefore, it’s a stagehand worth considering.



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