BHP Billiton plc and Shire plc could be the FTSE 100's best bargains

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BHP Billiton mine

Around six years ago, FTSE 100 mining stocks were booming -- and BHP Billiton(LSE: BLT) shares reached 2,475p in April 2011.

But Chinese demand was slowing, a worldwide oversupply pushed metals and minerals prices down, and we've had a sector slump -- and today BHP shares trade for just 1,358p, having fallen 45%. We've had some decent dividends to offset that, but it's still a poor overall performance.

Is it time to buy for recovery? I think it is.

Some commentators will tell you they can work out when to get into and out of the mining cycle -- but I certainly can't do it, and I reckon it's a mug's game to try timing it. So I just go on fundamentals and buy shares for the long term when they look cheap -- and I'm attracted to BHP's right now.

Iron ore reached a low at the end of 2015, but it's stabilised and even regained a little since then, while copper has been on the way back up over the same timescale, and the worst of the commodities weakness appears to be over.

A decent year

In a full-year production update on 19 July, BHP told us it had met most of its production guidance, though copper output was down 16% -- largely due to a combination of industrial action at its Escondida facility, and a power outage and unplanned maintenance at Olympic Dam, though output is expected to pick up by 7% in the current financial year.

If the mining sector is looking good value now, why BHP Billiton? Well, I'm drawn to its diversification, meaning the company is less of a hostage to prices and demand of any individual commodity.

BHP Billiton shares have been recovering steadily since early 2016, and with forecast P/E multiples of 13-14 and dividend yields of around 5% predicted, I think the point of maximum pessimism is past and the shares are good value.

Full-year results are due on 22 August.

Best pharma buy?

I've liked Shire(LSE: SHP) as a long-term prospect for some time because it has a number of key drugs for rare conditions in its arsenal, and that provides a significant defensive moat. The available market combined with the expense mean big barriers for competitors trying to research the same things.

Earnings have been erratic and the dividend is low, but that's fairly characteristic of a company in this sector that is very much still in its growth phase -- and forecasts suggest strong growth ahead.

While 2016 EPS fell, top line revenue grew nicely, in a year that chief executive Flemming Ornskov described as transformational, adding that: "With multiple product launches planned in 2017... we remain extremely optimistic about Shire's long-term growth prospects."

Hard-to-beat growth potential

First-quarter results lend strength to those optimistic forecasts, recording a 109% rise in total revenue and 82% growth in non-GAAP operating income. First-half results are due on 3 August, and should give us a better picture, especially of the firm's ongoing integration of Baxalta, acquired in June 2016 (though at the Q1 stage it was ahead of plan).

If all that doesn't seem attractive enough, share price weakness over the past couple of years puts Shire's 4,271p shares on a forward P/E of just 11, dropping to 10 on 2018 forecasts, and an attractive PEG of 0.7.

I think that's just too cheap.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Shire. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.