Will These 3 Resources Stocks Post Stellar Returns? Amur Minerals Corporation, Tullow Oil plc And Lonmin Plc

Is now the right time to buy Amur Minerals Corporation (LON: AMC), Tullow Oil plc (LON: TLW) and Lonmin Plc (LON: LMI)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The last week has been particularly painful for the resources sector, with doubts surrounding global demand for commodities such as oil, gas and iron ore causing investors to sell up and walk away.

Clearly, it is tempting to follow them when the industry is experiencing such a rough patch and especially when there seems to be little light at the end of the tunnel. Indeed, the prices of a range of commodities could easily fall further, with a floor not yet in sight due to the nervousness of investors across the world.

However, for long term investors who are perhaps towards the less risk averse end of the investing spectrum, this may be a once-in-a-decade opportunity to buy the most promising resources companies at a fraction of their intrinsic value. Certainly, their prices may fall in the short run but, in the longer term, they could prove to be excellent investments.

One such opportunity is platinum producer Lonmin (LSE: LMI). Its financial performance has been rather mixed in recent years, with two of the last five including a red bottom line. And, looking ahead to the next two years, its losses are set to continue, with Lonmin expected to post as pretax loss of £90m this year followed by a further £20m loss next year.

Clearly, there is little for investors to get excited about in the short run but the potential in Lonmin is in its valuation. Sure, losses may cause the value of its net assets to fall, but Lonmin trades on a super-wide margin of safety which indicates that in the coming years its share price could move upwards at a rapid rate. In fact, following the fall in Lonmin’s share price of 15% in the last week, it now trades on a price to book value (P/B) ratio of just 0.06.

To put this in context, a company would normally be expected to trade at a premium to its net asset value to reflect the goodwill that it has as a business. However, Lonmin currently has £2.17bn of net assets and is valued by the market at just £123m, which indicates that it really is dirt cheap.

Similarly, Tullow Oil (LSE: TLW) is also trading on a staggeringly low valuation. Unlike Lonmin, it is expected to move back into profitability this year with a pretax profit of £81m. And, looking ahead to next year, pretax profit is forecast to rise significantly to around £200m. Clearly, there is scope for both of these figures to be downgraded and, with the oil price continuing to show little sign of an upward movement, it would not be a major surprise for that to happen.

However, the risk/reward ratio for Tullow remains favourable in spite of that prospect. That’s because, like Lonmin, it trades at a sizeable discount to its net asset value, with Tullow having a P/B ratio of just 0.69. Furthermore, Tullow offers a price to earnings growth (PEG) ratio of just 0.1, which indicates that now is a good time to buy ahead of the prospect of excellent long term gains.

Meanwhile, the last week has also been tough for Amur Minerals (LSE: AMC), with its share price having dropped by almost 10%. However, this is most likely due to general sector weakness rather than being anything company-specific, since Amur is making excellent progress with its Kun-Manie prospect in Russia.

Certainly, financing issues may hold back Amur’s share price performance in the short run, since it is a major prospect which, it could be argued, has come along at a bad time. In other words, with investors being bearish on the sector, Amur may find it more challenging to find the funds necessary to build the required infrastructure. However, with upbeat news flow regarding the project and a world-class asset, Amur still appears to be a top quality, albeit speculative, resources play for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »