Are Fresnillo plc, Glencore plc and Exillon Energy plc on the cusp of 50%+ returns?

Should you pile into these 3 resources stocks right now? Fresnillo plc (LON: FRES), Glencore plc (LON: GLEN) and Exillon Energy plc (LON: EXI)

| 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.

A relatively robust outlook

Today’s update from the world’s largest silver miner Fresnillo (LSE: FRES) shows that it is making encouraging progress, although it notes that the outlook for the industry remains uncertain. Clearly, with all resources companies they are highly dependent upon the price of commodities and while the outlook for silver and gold is relatively robust, a risk in this regard remains for investors in Fresnillo.

With Fresnillo expected to keep its costs low and being on target to hit 2018 production guidance according to today’s update, it seems to be in a relatively strong position. Due to a wide margin of safety, Fresnillo seems to be worthy of investment at the current time, with a price to earnings growth (PEG) ratio of just 0.5. That may be viewed as somewhat surprising since Fresnillo’s share price has risen by 54% already this year. However, even if it were to rise by another 50%, Fresnillo’s PEG ratio would still be a lowly 0.7 and this indicates that capital gains of that nature are very much on the cards.

A change could come

Also offering significant upside potential is Glencore (LSE: GLEN). Clearly, it is a relatively risky buy because of the potential for commodity price falls, but also because Glencore has been viewed in the past as having an overly leveraged balance sheet. Although it is making progress in this regard, investor sentiment could remain weak nonetheless and act as a brake on the company’s share price.

However, with Glencore forecast to increase its earnings by 79% in the next financial year, it could witness a step change in investor sentiment over the coming year. And with its shares trading on a PEG ratio of only 0.4, they seem to offer 50%+ upside. This doesn’t mean that further gains are guaranteed following Glencore’s 70% surge year-to-date, but it does mean that the company’s risk/reward ratio is highly appealing. As such, for less risk averse investors now could be an opportune moment to buy a slice of the business.

An appealing asset base

Meanwhile, shares in Exillon Energy (LSE: EXI) continue to disappoint, having fallen by around 40% since the turn of the year. That’s despite investor sentiment surrounding the wider oil and gas industry having improved during that period, as well as the release of an upbeat production report last month.

Encouragingly, Exillon’s production in March increased for the first time since November. Oil production reached 14,968 barrels of oil per day (bopd) versus 14,660 bopd in February and with the company having a relatively appealing asset base, its long term future could be reasonably bright. That’s especially the case since it trades on a historic price to earnings (P/E) ratio of less than 3, which indicates that its shares are cheap.

However, with a number of other oil and gas companies benefitting from improving investor sentiment, offering good value for money and upbeat prospects as well as size and scale advantages, there may be better options for 50%+ returns elsewhere.

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 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

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 »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »