Should I buy BHP shares in 2023?

In the last six months, the BHP Group Ltd (ASX: BHP) share price has risen by around 30%. It has certainly been a great run for the ASX mining share – but is it a buy?

As Australia’s biggest resources business, BHP benefits enormously from higher commodity prices.

The iron ore price has gone from around US$90 per tonne up to US$121 per tonne, according to Commsec.

When the price of a resource rises, it boosts revenue and usually adds even more to net profit after tax (NPAT) because the costs of producing the resource are largely fixed but the price for it has increased. That extra cash can flow straight to the bottom line.

What’s driving the BHP share price higher?

The mining giant is seemingly benefiting from the improving outlook for China. After a period of COVID-19 lockdowns, which limited economic activity, things are now looking more promising for a recovery. China’s cities are open again.

A return to full economic activity could be good news for the demand for commodities like iron ore, copper, and nickel, which BHP supplies. That could also be good news for the BHP share price, which we’re already seeing.

But China doesn’t want to pay too much for iron of course. According to reporting by the Australian Financial Review:

China’s state planner on Wednesday issued its third warning this month against excessive speculation in iron ore, adding it will increase supervision of the country’s spot and futures markets.

Companies should not engage in price gouging and speculation, said the National Development and Reform Commission (NDRC), in a post on its official WeChat account.

So, the higher the iron ore price goes, the more pressure China could try to put on it and push the price of iron ore down.

Should investors buy right now?

The phrase “buy low, sell high” is a bit of a cliché. However, I think it’s very relevant when it comes to investing in resource businesses.

It seems easy to buy shares when commodity prices are roaring and strong profit is likely. But, resource prices don’t usually stay strong forever. Supply and demand can vary quite significantly. Just look at how things have plunged and soared for iron since 2015.

I don’t think it makes a lot of sense to buy at the current BHP share price when it’s close to its all-time high. Even if the company’s dividend income could be strong this year.

In my opinion, the best time to buy BHP shares is when things look bleak and the outlook is pessimistic.

One leading investment bank, Goldman Sachs, has a neutral rating on the ASX mining share, with a price target of $48.10, according to Commsec. That implies a slight fall for the BHP share price over the next year.

The post Should I buy BHP shares in 2023? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• My ASX shares fell 15% last year. Here’s what I’m doing now
• ASX 200 mining shares: To buy or not to buy?
• Why did iron ore shares lag the ASX 200 on Monday?
• BHP share price hits milestone $50 mark on Monday

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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 Scott Phillips.

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