This Could be the BEST Resource Stock on the Market

Depending on when you were born, you might remember Muhammad Ali when he was a young fighter in his prime during the mid- to late-1960s. Or, if you're too young to recall but have seen footage of his fights from those days, then you'll understand why so many sports fans say he was the best heavyweight ever. Nobody could touch him.

In the world of investing, there's a natural resource stock that's something like this -- it's easily one of the best, if not the best, of its kind. Few, if any, other natural-resource firms compare in terms of diversification, financial strength, growth of sales and earnings or long-term stock returns.

I'm referring to Melbourne, Australia-based BHP Billiton, Ltd. (NYSE: BHP), the world's largest publicly-traded mining conglomerate. It's a leading supplier of many natural resources crucial to industry, such as aluminum, coal, copper, iron ore, minerals, oil, natural gas and silver. In 2011, the company produced 81 million barrels of oil, 405 billion cubic feet of natural gas and 1.1 million tons of copper. As of June 30, 2011, proven reserves included 583 million barrels of oil and 7.5 billion cubic feet of natural gas.

Consistently strong performance
During the nearly five-year period from June 2007 to now, yearly revenue rose from $39.5 billion to $72 billion -- an annualized growth rate of 14.5%. Earnings per share (EPS) climbed 14% a year during that period, from $4.59 per share to $8.56 per share. Dividend growth was even more impressive, spiking from $0.94 per share in 2007 to $2.02 a share in 2011, good for a 16.5% annualized growth rate.

Long-term stock performance has also been excellent, as the table below illustrates.

The difference between an elite boxer like Ali and a great stock like BHP Billiton is the stock doesn't necessarily have to wear out over time. While the boxer will inevitably have to quit at some point because of age, a stock may deliver peak performance for decades if the company is well-managed and the economy provides decent tailwinds. I believe the economy will give BHP Billiton a boost, mainly in the form of high natural-resource demand among emerging markets in Latin America, Asia and Africa, along with support from Eastern Europe, Western Europe and North America.

As for the company itself, it's set to keep dominating the natural resources industry for a very long time. Wide product diversification will be key, because it lets BHP Billiton benefit from any number of natural resource rallies that might be occurring while also providing a cushion against any downturns. Proximity to Asian markets is obviously key, too, since Asia will likely continue to be an increasingly large natural resources consumer, particularly of iron ore and coal.

Natural Gas
Natural gas could be a particular bright spot going forward now that BHP Billiton owns Petrohawk Energy Corp. Because of this $15.1 billion acquisition on Aug. 26, 2011, production in BHP Billiton's petroleum unit is rising sharply -- jumping 36% to the equivalent of 106 million barrels of oil between July 1 and Dec. 31, 2011. Revenue in the petroleum unit climbed nearly 38% during that period to almost $6.8 billion. I think the petroleum unit could greatly outperform once natural gas prices begin to climb, as I described in a recent article. [See: "My Favorite Stock for a Natural Gas Rebound"]

Potash
BHP  Billiton also plans to aggressively expand investment in production of potash, a fertilizer ingredient analysts believe could rise in price by more than 30% from around $485 per ton now to $650 a ton by the end of 2012. To capitalize on this, BHP Billiton is developing a potash mine in Saskatchewan, Canada and has already spent about $2 billion of the total projected cost of $12 billion. The mine is scheduled to open in 2015 and will generate an estimated 3.4 billion tons of potash over its 50-year life expectancy.

Risks to Consider: Because natural-resource prices often fluctuate wildly in the short-term, BHP Billiton's profits and stock price can, too.

> Despite the risk of short-term volatility, BHP Billiton should perform like a champ in the long run. Analyst forecasts for the next three to five years call for annual growth rates of 14% for revenue, 16% for earnings and 13% for dividends. At these rates, revenue would reach $138 billion a year, EPS would grow to $17.90 and dividends would climb to $3.70 a share.