BHP shares vs Woodside shares: Which is the better buy?

BHP Group Ltd (ASX: BHP) and Woodside Energy Group Ltd (ASX: WDS) are two of the biggest resources shares on the ASX.

Both are quality businesses. Both generate large amounts of cash when commodity prices are favourable. And both can play a useful role in an income-focused portfolio.

But if I had to choose one to buy today, I would pick BHP.

The main reason is copper.

Why I like Woodside

Woodside is still an ASX share I rate.

It gives investors exposure to global energy markets, has high-quality LNG assets, and can generate very strong cash flow when oil and gas prices are elevated.

That can also support attractive dividends.

In the current environment, the business has benefited from higher energy prices. The conflict in the Middle East has added risk to global oil supply, and that has helped keep energy prices strong.

However, this is also the main reason I would be a little cautious.

If the US and Iran sign a peace deal, and oil supplies are able to flow more freely through the Strait of Hormuz, oil prices could pull back meaningfully.

That would not make Woodside a bad business. But it could take some heat out of the investment case in the short term.

Energy markets can change quickly, and Woodside’s earnings remain highly exposed to oil and gas prices. For investors who already own the stock, I can see the case for holding. But if I were putting fresh money to work today, I would prefer BHP shares.

Why BHP shares win for me

BHP is also exposed to commodity cycles, so it is not immune from volatility.

Iron ore prices, China’s economy, project costs, and global growth all matter.

But I think BHP has a more compelling long-term demand story because of copper.

Copper is central to electrification, electricity networks, renewable energy infrastructure, data centres, industrial activity, and electric vehicles. The world is going to need a lot of it over the next decade.

At the same time, I am not convinced supply will keep up with demand.

New copper mines are difficult to develop. They can take many years to approve, fund, build, and ramp up. Grades are also declining at some older mines, and political or permitting risks can delay new projects.

That creates a very attractive setup for established producers.

BHP is already the world’s largest copper producer, which puts it in a strong position if copper prices remain elevated over the long term.

The valuation question

There is one important caveat.

BHP shares have performed strongly this year, and the valuation is no longer as compelling as it was.

That means I would not necessarily go all-in today.

Instead, I would consider buying gradually. That could mean starting with a partial position and adding more if the share price pulls back.

I think that approach makes sense because BHP is still a cyclical business. Even if the long-term copper story is attractive, commodity shares rarely move in a straight line.

There will almost certainly be periods when sentiment cools, prices fall, or investors worry about global growth. Those moments could provide better entry points.

Foolish takeaway

Woodside and BHP are both quality ASX resources shares.

But BHP looks more attractive to me because of its copper exposure.

So, while I still like Woodside, BHP would be my pick today. I would just be patient with the entry point after its strong run this year.

The post BHP shares vs Woodside shares: Which is the better buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.