The old saying ‘buy low and sell high’ is excellent advice but, due to emotions, is tough to put into practice. In fact, buying when a share price is low takes either a lot of courage, or a lot of logic and it can be difficult to find either of those attributes when the outlook looks dire.
However, share prices are never low without good reason and, in the case of the resources sector, the future prospects for a range of commodities seem rather pessimistic. For example, there is a global demand/supply imbalance in the oil sector that is showing little sign of correcting, while fears of a financial meltdown are not strong enough to push the gold price higher. Similarly, a range of other commodities are struggling to post any price growth due to oversupply and weak demand – especially from China which continues to endure a so-called ‘soft landing’.
Despite this, there are reasons for investors in resources stocks to cheer. As mentioned, the time to buy any stock is when it is low in price and, on this front, the likes of Glencore (LSE: GLEN), Centamin (LSE: CEY) and Falkland Oil & Gas (LSE: FOGL) all appear to fit the bill.
For example, Glencore remains one of the best diversified and most financially sound mining companies in the world. And, while it has seen its bottom line come under severe pressure in recent years, its financial performance over the next two years is set to be significantly better, with double-digit growth forecast in both the current year and next year. Despite this, Glencore trades on a price to earnings growth (PEG) ratio of just 0.3, which indicates that despite falling by 8% since the turn of the year, Glencore’s share price could soar over the long run.
Similarly, gold producer, Centamin, also offers growth at a reasonable price. Like Glencore, it has a PEG ratio of just 0.3 and, with the price of gold being much more stable than that of other commodities, Centamin’s outlook may prove to be more positive than the market is currently pricing in. Furthermore, Centamin has the scope to become a top notch income stock even though it has a yield of just 2.7%. That’s because, with a payout ratio of just 31%, it has tremendous scope to increase dividends and offer a potent mix of growth, value and a great income.
Meanwhile, Falkland Oil & Gas trades at a considerable discount to its net asset value. In fact, it has a price to book (P/B) ratio of only 0.62 and this indicates that the oil explorer has a considerable margin of safety so that even if there are asset writedowns, its shares may not be hit as hard as may be anticipated. Furthermore, Falkland Oil & Gas has sound finances and upbeat prospects from its drilling programmes, which have the scope to boost its share price over the medium term.
