Value investing is simultaneously the easiest and most difficult investing philosophy to follow. It’s so simple to buy cheap, out-of-favor assets, but extremely difficult to execute in real time.

Among the cheapest and most out-of-favor assets today are commodities and the companies that pull those products out of the ground. While commodity companies have been hit hard, shares of Australia-based BHP Billiton Ltd. (NYSE: BHP) have fallen too far.  The company has a terrific track record, an excellent management team and will deliver strong long-term results to patient shareholders.

A number of essential commodities are trading at multi-year lows. The free-falling price of oil has been well covered, but coal and many of the industrial metals are well below the highs of 2011 and 2012.

Coming out of the financial crisis, China went on an unprecedented infrastructure spending spree. Iron and copper producers rushed to increase production as demand and the underlying prices spiked. However, as China’s demand has cooled, prices for iron and copper — that make up around 60% of BHP’s business — have come crashing down.

Over time, excess supply will leave the market, and prices will stabilize. While China’s demand for these materials could be subdued for the foreseeable future, India’s economy is also growing rapidly.

According to the JSW Group, an Indian conglomerate, India will import nearly 15 millions tons of iron ore in 2015. Commodities are cyclical businesses, and demand for commodities (and prices) will rise again bringing huge profits to BHP.

Although the coal, iron, copper and petroleum that BHP pulls out of the ground are essentially the same as those produced anywhere else, not all commodity companies are the same.

#-ad_banner-#While some companies show shockingly little discipline managing the inevitable price swings that come with being in the commodities business, BHP  is the best-run company in the industry.

It has delivered 14% annual returns to shareholders since 2003. The company  has also raised its dividend every year since 2003 and has an annual dividend growth rate over that time of nearly 20%. Shares now yield nearly 6.6%.

BHP also recently completed a spinoff of its less-profitable assets into a new entity called South32 Ltd. (OTCPK: SOUHY), which is an independent global metals and mining company.

Products like aluminum, manganese, nickel, silver, lead and zinc are lower margin for BHP  and spinning these assets off will allow managements of both entities to more easily allocate resources to its most profitable opportunities and return the rest of the cash to shareholders.

Spin-offs typically spur price appreciation in stocks as investors recognize the benefits of focused management and capital. However, since completing the spinoff of South 32, BHP shares have fallen more than 18%. No one gets rich investing at the peak of market cycles, but it takes nerves of steel to invest at the nadir. BHP  gives investors the opportunity to invest in a best-in-class enterprise at a rock-bottom price.

Risks To Consider: BHP Billiton is highly reliant on China. Any significant slowdown in its economy could put more downward pressure on commodity prices.

Action To Take –> Invest for the long term and be prepared for share price volatility. Commodity prices fluctuate, and BHP’s price performance will be heavily tied to the price of iron ore, copper and oil. These products are essential to the global economy, and BHP will thrive over the long term. This stock is a good buy at $39.50 per share.

If oil, natural resources or commodities are what interests you, look no further than StreetAuthority’s Scarcity & Real Wealth. Our resident natural resources expert Dave Forest has more than a decade’s experience as a trained geologist and analyst. His industry insight allows him to read the markets and provide the most timely, potentially lucrative advice for everything from oil and gold to molybdenum. Most recently, Dave has been talking about a rally in gold prices. To gain access to Dave’s latest research, click here.