BHP Billiton (NYSE:BHP) and Vale (NYSE:VALE) are both large-cap basic materials companies, but which is the better business? We will contrast the two businesses based on the strength of their earnings, profitability, risk, valuation, analyst recommendations, institutional ownership and dividends.

Dividends

BHP Billiton pays an annual dividend of $2.52 per share and has a dividend yield of 5.0%. Vale pays an annual dividend of $0.08 per share and has a dividend yield of 0.5%. BHP Billiton pays out 75.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Vale pays out 5.9% of its earnings in the form of a dividend.

Analyst Ratings

This is a summary of current recommendations for BHP Billiton and Vale, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
BHP Billiton 0 7 5 0 2.42
Vale 1 5 8 0 2.50

BHP Billiton presently has a consensus price target of $47.00, suggesting a potential downside of 5.96%. Vale has a consensus price target of $14.60, suggesting a potential downside of 4.26%. Given Vale’s stronger consensus rating and higher possible upside, analysts clearly believe Vale is more favorable than BHP Billiton.

Institutional and Insider Ownership

3.3% of BHP Billiton shares are owned by institutional investors. Comparatively, 20.0% of Vale shares are owned by institutional investors. 0.0% of BHP Billiton shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Volatility and Risk

BHP Billiton has a beta of 1.18, meaning that its stock price is 18% more volatile than the S&P 500. Comparatively, Vale has a beta of 1.76, meaning that its stock price is 76% more volatile than the S&P 500.

Profitability

This table compares BHP Billiton and Vale’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
BHP Billiton N/A N/A N/A
Vale 13.17% 17.47% 8.19%

Earnings & Valuation

This table compares BHP Billiton and Vale’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
BHP Billiton $43.64 billion 1.84 $3.71 billion $3.36 14.88
Vale $33.97 billion 2.34 $5.51 billion $1.35 11.30

Vale has lower revenue, but higher earnings than BHP Billiton. Vale is trading at a lower price-to-earnings ratio than BHP Billiton, indicating that it is currently the more affordable of the two stocks.

Summary

Vale beats BHP Billiton on 11 of the 16 factors compared between the two stocks.

About BHP Billiton

BHP Billiton Limited discovers, acquires, develops, and markets natural resources worldwide. It operates through four segments: Petroleum, Copper, Iron Ore, and Coal. The company explores for copper, silver, lead, zinc, molybdenum, uranium, gold, and iron ores, as well as metallurgical coal, thermal energy coal, and oil and gas properties. It also engages in the mining, smelting, and refining of nickel; the provision of freight, finance, administrative, trading, marketing, and support services; and potash development activities. The company was formerly known as BHP Limited and changed its name to BHP Billiton Limited in July 2001. BHP Billiton Limited was founded in 1851 and is headquartered in Melbourne, Australia. BHP Billiton Limited is a subsidiary of BHP Billiton Group.

About Vale

Vale S.A., together with its subsidiaries, produces and sells iron ore and iron ore pallets for use as raw materials in steelmaking in Brazil and internationally. It operates through Ferrous Minerals, Coal, and Base Metals segments. The Ferrous Minerals segment produces and extracts iron ore and pellets, manganese, ferroalloys, and others ferrous products and services, as well as engages in the provision of related railroad, port, and terminal logistics services. The Coal segment is involved in the extraction of metallurgical and thermal coal; and provision of related logistic services. The Base Metals segment produces and extracts non-ferrous minerals, including nickel, as well as its by-products, such as ferro-nickel, cobalt, gold, silver, copper, precious metals, and others. The company was formerly known as Companhia Vale do Rio Doce and changed its name to Vale S.A. in May 2009. Vale S.A. was founded in 1942 and is headquartered in Rio de Janeiro, Brazil.

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