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2 ASX shares I can’t ignore: BHP and XRO

The BHP Group Ltd (ASX:BHP) share price has decreased 19.7% since the start of 2024. It's probably worth asking, 'is the BHP share price good value?'
The BHP Group Ltd (ASX:BHP) share price has decreased 19.7% since the start of 2024. Meanwhile, the Xero Ltd (ASX:XRO) share price is 0.6% away from its 52-week high.

BHP share price in focus

BHP Group (formerly BHP Billiton) is a diversified natural resources company founded in 1885 that produces commodities for energy use and manufacturing, and is moving into fertilisers.

BHP’s principal business lines are mineral exploration and production. BHP’s assets, operations and interests are separated into three focus areas: copper and related minerals (e.g. gold, uranium, silver, zinc, etc.); iron ore; and coal (i.e. metallurgical and energy).

BHP shares are often seen as a reliable dividend-paying investment and are a common constituent of an ASX share portfolio. If you own a popular ETF or LIC, or invest with Industry Super, chances are you have some exposure to BHP shares already.

Since we consider BHP Group Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY23, BHP Group Ltd had an ROIC of 28.10% and revenue has compounded at 22.7% in recent years. Anything over 10% ROIC is pretty good for a mature-style business, since its cost of capital is likely below that level, so BHP Group Ltd crosses this hurdle.

XRO shares

Xero was founded in 2006 in Wellington, New Zealand, by Rod Drury, who led the company until 2018. Employing more than 3,000 people, Xero helps millions of subscribers manage their accounting and tax obligations across the globe.

The cloud-based “beautiful accounting software” developed by Xero is primarily for accountants and bookkeepers to better service their small business customers.

Through Xero, small business owners and their advisors/accountants have access to real-time financial data and on any device. Xero provides its core cloud accounting software to customers in New Zealand, Australia, the UK and, to a lesser extent, the USA.

BHP share price valuation

https://www.youtube.com/watch?v=QPUru-blkdc

One way to have a ‘fast read’ of where the BHP share price is, is to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a share holder, but it can fluctuate year-to-year or between payments. Currently, BHP Group Ltd shares have a dividend yield of around 6.28%, compared to its 5-year average of 6.14%. Put simply, BHP shares are trading above their historical average dividend yield.

Since XRO is more of a growth company than an established blue chip, a price-sales ratio might be a more appropriate assessment.The XRO share price currently trades at a price-sales ratio of 14.02x, which compares to its 5-year long-term average of 13.37x. So, its shares are trading higher than their historical average. However, a simple multiple like this should only be the start of your research. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Just remember there are many different ways to value a share, like Xero Ltd.

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Owen Rask’s investing report available

With bond ETFs like ASX:IAF and the S&P 500 riding high, now could be one of the best times to start earning passive income from a portfolio of shares and ETFs.

In this free analyst report, our Chief Investment Officer, Owen Rask, names 10 ASX stocks and ETFs to watch.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

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