I was puzzled by this headline in this internet article by livewiremarkets.com. How could BHP, the world's biggest miner, double the market capitalisation of CBA, Australia's biggest bank?
Then I realised that it was just an ambiguous, if not to say ambitious headline. Charlie Aitken had left out the word "be" which would have changed the headline to "BHP could be double CBA's market cap".
Crunching the numbers, this implies a $100 BHP share price. Here's how:
BHP's current share price is around $65, with some 5,081 million shares issued, giving it a market capitalisation of around $331 billion (never mind a few hundred million in rounding errors).
CBA's current share price is around 158, with some 1,673 million shares issued, giving it a market capitalisation of around $264 billion (same rounding errors).
If BHP were to achieve a market capitalisation twice that of CBA, that would divide $528 billion into 5,081 million shares, making its shares worth $104 each (again, ignoring the rounding errors).
WOW! And yet, walletinvestor.com has already pencilled in a 1-year "bull case" forecast of $95.39, albeit with a likelihood of only 25%.
How is this trend reflected in the immediate price? Well, after a huge jump in price to $65.75 on Thursday, it dropped to $65.16 on Friday, but overnight closing prices in London and New York suggest that BHP will resume trading in Sydney on Monday morning at well above $67.
Following Warren Buffett's advice to "only buy a stock if you'd be happy to own it if the market was closed for the next five years", I have been a rusted-on BHP investor for at least two long decades, and BHP's price movements have had a huge impact on the value of my portfolio. Yet it's just tiny dots on a flickering computer screen and a game that gets me out of bed in the morning and keeps my mind active. Come on, $104 !
