Will BP Plc, Tesco Plc & Anglo American Plc Ever Return To Previous Highs?

Will BP Plc (LON: BP), Tesco Plc (LON: TSCO) & Anglo American Plc (LON: AAL) prove value plays or value traps?

| 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.

It’s no surprise, given the $55bn price tag and recent drop in crude prices, that shares of BP (LSE: BP) still trade for 45% less than they did before the Gulf of Mexico oil spill. While charges related to the spill aren’t finished yet, we at least appear to be in the denouement. And crude prices 44% higher than mid-January lows suggest the worst of that crisis may be passing as well.

As BP comes out of the shadow of these twin crises, it’s positioned to perform well in the coming years. The oil spill forced the company to sell high-cost-of-production assets while they still fetched great prices when crude prices were above $100/bbl. The new, slimmer BP is now targeting around $50/bbl as its break-even prices.

However, if crude prices remain at this level for the long term, BP will see little growth and I can’t see share prices returning to their pre-spill peak. The shale revolution in the US has many industry figures reckoning $60/bbl could be a new ceiling on prices, at which point BP will be little more than a great income share.

A strong showing over Christmas and slowing market share loss have caused some Tesco (LSE: TSCO) bulls in the City to start spelling out their case for a turnaround. Although the 1.3% rise in like-for-like sales over the Christmas period was heartening, I still don’t see a way for shares to regain the lustre they once held.

Mountain of woes

Even bullish analysts would have a difficult time describing Tesco as a growth share thanks to continued competition from the traditional grocers, the German low-cost rivals, and online-only outfits such as Ocado and Amazon. And with shares trading at a full 22 times 2017 forecast earnings, it’s hardly a bargain value investment.

Add to these woes a mountain of debt expected to be in the range of £18bn at year-end and the story becomes even worse for the struggling grocer. Unfortunately for Tesco, the grocery industry may have changed forever with the UK success of Aldi and Lidl plus changing customer habits. Unless the company can find a way to claw back market share while simultaneously raising margins, I don’t see a way for share prices to reach their previous levels.

The incredible shrinking shares

Off more than 85% from post-Financial Crisis highs reached in 2011, the struggling miner Anglo American (LSE: AAL) may well be the least likely of the bunch to return to once-commanding heights.

Anglo is seeking to dispose of more than half of its 2013 assets and cut its workforce by over 60%. These moves will make revenues a mere shadow of the numbers posted during the boom years, but they’re necessary to rein-in sky-high costs and ballooning debt. Net debt at the end of 2015 was $12.9bn, and only stayed flat during the year due to $1.7bn worth of asset sales.

If prices of major commodities stay low for the foreseeable future, which appears likely as demand is stagnant and supply not falling fast enough, Anglo American will continue shrinking. With revenue continuing to decrease thanks to low prices and fewer assets, I don’t see a way for the shares to rebound from their current £5 price tag to 2011 highs of over £34 per share.

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.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

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 »