3 Dirt-Cheap Resources Stocks: Lonmin Plc, Petrofac Limited And Rockhopper Exploration Plc

Are these 3 cheap resources stocks worth buying? Lonmin Plc (LON: LMI), Petrofac Limited (LON: PFC) and Rockhopper Exploration Plc (LON: RKH)

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2015 has been a rather mixed year for the resources sector, with the valuations of some of its constituents falling heavily while others have soared. Firmly in the latter camp is oil services company Petrofac (LSE: PFC). Its shares are up 25% since the turn of the year and, while they are still a long way off their 1500p+ level from just a few years ago, the company seems to be making excellent progress despite a weak oil price.

Of course, a falling oil price hits oil support services companies to a lesser extent than oil producers. This is evident in Petrofac’s financial performance, with the company remaining profitable throughout the oil price slide to below $50 per barrel.

Certainly, net profit has been hit hard, with Petrofac reporting a decline in earnings of 11% last year and this is set to continue in the current year with a fall of 69%. However, it is due to be followed with earnings growth of 174% next year and, with Petrofac trading on a forward price to earnings (P/E) ratio of just 9.5, it appears as though the vast majority of this growth has not yet been priced in by the market.

Furthermore, Petrofac also yields 4.6% from a dividend which is set to be covered 2.3 times by profit next year. This means that as well as being a strong growth and value play, Petrofac is also a top notch income stock, too.

However, when it comes to a cheap valuation, Lonmin (LSE: LMI) is difficult to beat. Unlike Petrofac, its share price has slumped by 83% since the turn of the year and this means that the company now has a price to book value (P/B) ratio of just 0.1. This is incredibly low and, while asset writedowns are a real danger moving forward, there still appears to be a relatively wide margin of safety included in the company’s share price.

Looking ahead, Lonmin is likely to benefit from the recent rise in the price of platinum, with the precious metal making gains of over 10% in a matter of weeks. Certainly, there is a risk that demand from diesel cars is hurt by the recent VW scandal but, with such a low valuation and with Lonmin due to post a narrower loss in each of the next two years, its risk/reward ratio seems to be relatively appealing.

Similarly, Rockhopper Exploration (LSE: RKH) has posted a fall in its share price of 41% since the turn of the year, with a falling oil price being a major reason for this. In fact, Rockhopper has had a relatively upbeat year, with impressive finds in the North Falkland Basin as well as continued progress with its Mediterranean assets showing that it has the potential to become a highly profitable oil producer in the coming years.

Furthermore, with financial health becoming increasingly important to investors in the oil and gas industry, Rockhopper’s relatively large pile of cash plus a P/B ratio of 0.75 indicate that it could prove to be a worthwhile, albeit volatile, long-term purchase.

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 owns shares of Petrofac. The Motley Fool UK owns shares of and has recommended Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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