Today I am looking at the investment prospects of two recent FTSE fallers.
Digger set to dive?
Diversified mining dud Anglo American (LSE: AAL) endured yet another week to forget between last Monday and Friday as investor sentiment continued to shake. The business saw its share value erode 3% during the period, and I reckon additional weakness can be expected as supply/demand indicators across commodity markets worsen.
In a rare spot of bright news for Anglo American, iron ore prices chugged back above the $41 per tonne marker on Friday trading after positive supply news. Fellow mining colossus Vale announced that the Tubarão port in Brazil had been closed on environmental grounds, preventing the loading of some 200,000 tonnes of material per day, according to Reuters.
It is unknown how long the restrictions are likely to remain in place, but regardless of this development I believe chronic oversupply should continue to plague the market for some time to come.
Mega miners like BHP Billiton, Rio Tinto and Anglo American continue to relentlessly lift output despite tanking Chinese steelmaking activity, a phenomenon which drove iron ore prices to multi-year lows of $38.30 per tonne just last month.
Anglo American derives more than a quarter of underlying earnings from the iron ore market, leaving it in a precarious position as material prices look set for further weakness. But the firm’s problems are not just confined to this segment as prices of critical commodities copper, nickel, platinum and coal are also steadily sinking.
It comes as little surprise that the City therefore expects Anglo American to follow an anticipated 57% earnings slide last year with an extra 36% drop in 2016.
Even though this creates a conventionally-cheap P/E rating of 10.4 times, and the business continues to sell assets to shore up its battered balance sheet — Anglo American sold its Callide thermal coal assets just last week — I believe the risks remain too great to go bargain hunting at the present time.
A banking beauty
I am far more optimistic concerning the earnings outlook over at banking colossus HSBC (LSE: HSBA), however. The bank saw its share price fall 1% last week as fears over the health of the Chinese economy continued to oscillate.
While economic rebalancing from Beijing may have an effect on the financial health of the Asian continent as a whole, I believe HSBC’s top-table position in the region should keep revenues the top line moving higher. Furthermore, the successful cost-cutting measures at ‘The World’s Local Bank’ should also help to offset any potential near-term revenues blips.
The abacus bashers expect HSBC to follow a predicted 8% earnings rise in 2015 with a 4% slip in 2016. But current forecasts still leave the bank dealing on a delicious P/E reading of 10.2 times. This is terrific value given that surging emerging market incomes should drive banking product demand skywards in the coming years.
On top of this, a predicted dividend of 33.8p per share for the current year creates a market-mashing yield of 6.4%.
