The aim of all investors is to buy low and sell high. Sounds easy in theory, but in practice it’s a whole lot more difficult.
That’s because share prices are never low without reason. In other words, if the macroeconomic outlook is very positive and the company is performing extremely well, its share price is very unlikely to be low. So, there must be a problem in order to create an opportunity.
With that in mind, here are three companies that are going through challenging periods but, as a result, could prove to be top future performers.
BP
Having lost an appeal to try and claw back a vast amount of compensation paid out to businesses following the Deepwater Horizon oil spill, BP (LSE: BP) is not one of the most in-demand stocks right now. Couple this with increasing sanctions against Russia that could hurt BP due to its stake in Rosneft, and it’s of little surprise that the company trades on a price to earnings (P/E) ratio of just 9.4.
However, with a strong asset base and a competent management team, BP could turn things around in the long run. Certainly, the future will be volatile but, for investors who can afford to take a long term view, BP’s valuation could surprise on the upside.
Rio Tinto
As a result of a falling iron ore price, Rio Tinto (LSE: RIO) has seen its share price fall by 12% in 2014. Indeed, over 90% of the company’s profits were generated by the sale of iron ore last year, so it’s fair to say that the iron ore price has a major impact on Rio Tinto’s bottom line.
This, though, provides an opportunity. Rio Tinto currently trades on a P/E ratio of just 9.4 and yields a hugely impressive 4.3%. With demand for iron ore having the potential to increase following China’s ‘soft landing’, things could be much better for investors in Rio Tinto moving forward.
Wm. Morrison
Clearly, Wm. Morrison (LSE: MRW) is experiencing a hugely challenging period. The UK supermarket sector is a tough place to do business right now but, looking ahead, Wm. Morrison has potential.
That’s because it is in the midst of rolling out an ambitious convenience store expansion and an online grocery offering. Both of these areas are still showing strong sales growth in the sector and, until now, Wm. Morrison has had next to no exposure to either of them. This has undoubtedly held it back versus sector peers and could help it to improve the top and bottom lines in future.
With shares in Wm. Morrison trading at less than net asset value, it is clearly unloved and could, therefore, be a strong long term play.
