Investment Column: Watch China before a punt on BHP Billiton

Our view: Cautious hold

Share price: 1555p (+27.5p)

For some time now, plenty of companies, both in the mining sector and elsewhere, have pinned their hopes on the emerging markets, specifically China and India.

Whacking great big GDP figures, and seemingly insatiable demand, meant until recently group's such as BHP Billiton could rely on some very big orders.

Then came the recession and with it the consequential drop in demand for commodities. As such, companies like BHP have suffered: The mining giant reported yesterday that full-year profits had dropped by half, its first profit decline in seven years.

Investors might be tempted to cut and run, especially in light of chief executive Marius Kloppers' musings that the last 12 months were the toughest he has seen. It will be hard to tell if real demand is increasing until next year, he adds. Those wanting quick returns should probably sell now, and take advantage of the 20 per cent rise the shares have seen in the last month. In the mining sector bets on the shadow boxing between Xstrata and Anglo American will probably be more profitable in the short term.

However, BHP is the benchmark for the industry, and while we would dismiss the argument that punters should always hold the biggest group, BHP has proven a steady punt in the past; longer term investors will note the $32bn that has been returned to shareholders since the BHP and Billiton merger eight years ago.

On the other hand, there is no getting away from the fact that yesterday's numbers were bad, even if expected. The analysts at Evolution say sell: "[The] numbers are on the better side of expectations but the outlook statement cautions about getting too carried away on the upside.

"This reflects concerns that medium-term commodity demand growth may be muted by structural economic problems and be offset by mine restarts ... BHP Billiton looks the most highly rated of the big four. Sell/Switch into a higher growth option." We would be prepared to wait until the full impact of the Chinese stimulus package has worked through before jettisoning the stock. Cautious hold.

Balfour Beatty

Our view: Buy

Share price: 346p (+26.4p)

You might need to read the following twice to believe it: the construction sector is in clover and its more impressive outfits are reporting stellar numbers.

After 12 months of misery for most in the industry, Balfour Beatty, said yesterday that it was going great guns, based largely on having its work spread across a number of different markets and countries.

In fairness to chief executive Ian Tyler, he has never said that the situation is dire, and likes to a draw a distinction between Balfour and the housebuilders, which have suffered the real woe.

Nonetheless, despite exposure to more defensive markets, such as education, health and road building, Balfour's share price has suffered with the rest of them, falling by more than 20 per cent in the last year. Mr Tyler concedes that some investors get put off by the group's complex nature, and that he "can't tell you" why the shares have traded down.

We reckon investors should put aside their confusion and buy the stock. The shares do trade on a discount to the rest of the sector, but with £12.5bn of secure orders on the way, we reckon the stock will head north. Buy.

Trifast

Our view: Hold

Share price: 24p (-0.5p)

There is not a public relations firm under the sun that does not talk about the strength of a client's management team when asked about a company's attributes. We'd bet that Enron's cowboys got a glowing reference.

But a bet on Trifast, the maker and distributor of industrial fastenings, really is a bet on the ability of the management team to turn the group around after a pretty trying 18 months. The new team, led by chairman Malcolm Diamond, says it is streamlining the board and working harder to source supplies more cheaply, as well as improving the international sales force.

Investors may wish to wait and see how the new team does in terms of numbers. So far, the figures are bland; yesterday's market update said that trading in the first three months of the year was on a par with last year.

Mr Diamond says the new management is responsible for the share price rising from 8p in March (we do not doubt it, but would point out that most equities have risen in the same period), and that he is optimistic about the future. The shares, he says, are undervalued and will reach at least 51p.

We would wait for more tangible results before buying, but we do agree that the stock is cheap. Hold.