49.6 More Reasons To Sell Glencore PLC, Afren Plc, Vedanta Resources plc And Antofagasta plc

Royston Wild explains why investors should steer clear of Glencore PLC (LON: GLEN), Afren Plc (LON: AFR), Vedanta Resources plc (LON: VED) and Antofagasta plc (LON: ANTO).

| 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.

Another month, another slew of bad news from the world’s factory floor of China.

Latest HSBC/Markit PMI manufacturing data showed activity shrink again in June, with a figure of 49.6 once again below the expansionary/contractionary watermark of 50. Manufacturing has peeked above this reading just once so far in 2015, and today’s slip marks the fourth successive slide for the Asian powerhouse.

This prolonged drop comes despite repeated efforts by the People’s Bank of China to stimulate the domestic economy, leading to fears that Beijing is set for a harder economic landing than many had feared. Consequently the outlook for the world’s natural resources sector continues to worsen, with rising production across many commodities markets adding to the sickly demand picture.

Metals markets lack lustre

Given this backdrop, I believe earnings growth at metals producers like Antofagasta (LSE: ANTO) and Glencore (LSE: GLEN) is likely to remain elusive for some time yet.

Producers across the mining sector have initiated vast asset-shedding and cost-cutting measures to protect the bottom line as commodity prices drag. Naturally such measures are earnings-boosting rather than profits-driving, so quite why the City expects profits at these companies to bounce back any time soon escapes me — Glencore and Antofagasta are expected to see earnings advance 15% and 6% respectively in 2015.

Indeed, prices of bellwether metal copper have rattled to three-month lows just this week around $5,650 per tonne on the back of a worsening supply/demand balance, and have shed 10% in the past month alone. So the weak Chinese data released overnight does little to assuage fears that commodity markets are not past the worst.

Oil sector continues to drown

And the same fears continue to wash over the fossil fuel segments, of course, affecting the revenues outlook for industry goliaths like Vedanta Resources (LSE: VED) as well as exploration minnows like Afren (LSE: AFR), where a dragging top line is casting a huge pall over their very existence.

Like their mining sector cousins, the City inexplicably expects the bottom line of these firms to improve markedly despite the impact of surging supply from OPEC, the US and Russia. Vedanta is predicted to see losses narrow this year, to 5.4 US cents per share from 14.2 cents in the year concluding March 2015, while Afren is anticipated to swing to earnings of 1 US cent per share in 2015 from losses of 147.2 cents in the previous period.

Still, I believe that until the world’s major resources producers begin to get a grip on surging production levels, and the global economy exhibits signs of sucking up the excess supply, investing in companies like those I have discussed remains a high-risk business.

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.

Royston Wild 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

Bronze bull and bear figurines
Investing Articles

After the general election what might happen to the FTSE 100?

Our writer’s been looking at the manifestos of the three main political parties to try and understand how the general…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

When will Shein hit the UK stock market and should I invest?

With Shein looking likely to list on the London stock market in 2024, this writer weighs up the case for…

Read more »

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »