Why I’d Buy Roxi Petroleum plc & Falkland Oil And Gas Limited, But Would Avoid Hochschild Mining Plc

These 2 resources stocks appear to offer significantly more potential than Hochschild Mining Plc (LON: HOC): Roxi Petroleum plc (LON: RXP) and Falkland Oil And Gas Limited (LON: FOGL)

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.

For many investors in resources stocks, 2015 has thus far been a year to forget. Falling commodity prices, a weak outlook for demand and declining investor sentiment have meant that the share prices of most resources companies have fallen significantly year-to-date.

For example, even though the price of silver has fallen by far less than that of other commodities such as iron ore and oil, silver mining company Hochschild (LSE: HOCH) has posted a fall in its share price of 9% since the turn of the year. And, even though its most recent production update showed that the company was on-track to meet its full-year production guidance, it is still expected to post a loss for the full year. That would make it three years in a row of losses and, as a result, it would be of little surprise for investor sentiment to decline further before it improves.

Of course, Hochschild is expected to return to profitability in 2016, with its pretax profit forecast to be around £19m. While this would be a major step in the right direction and could help to stabilise investor sentiment in the stock, Hochschild’s valuation remains difficult to justify. For example, it trades on a forward price to earnings (P/E) ratio of 31.2 and, with the outlook for the mining sector being relatively challenging, its valuation could come under pressure over the medium term.

Clearly, any investment in the resources sector comes with considerable risk at the present time, since there is a very real threat that further commodity price falls could lie ahead in the short run. However, the risk/reward ratios for Roxi Petroleum (LSE: RXP) and Falkland Oil and Gas (LSE: FOGL) appear to be relatively favourable and, while they are likely to be volatile stocks that are highly dependent upon news flow in the months ahead, their long term potential remains appealing.

For example, Falkland Oil and Gas has considerable potential via a very appealing asset base, with it having a share of what could prove to be a total haul of over 1m barrels of recoverable oil at the Isobel Deep prospect in the North Falkland Basin. Furthermore, it has a relatively sound balance sheet with sufficient cash to progress with its drilling programme and, by spreading the risk with its partners, has been able to produce an even more appealing risk/reward ratio for its investors. Certainly, its share price performance is highly dependent upon future news flow, but as far as smaller exploration companies go, it appears to be among the more appealing.

Similarly, Roxi Petroleum is also a relatively volatile stock, but has delivered a share price rise of 22% since the turn of the year. A key reason for this is encouraging news flow regarding its drilling programme, with the company being able to successfully raise a further $20m during the course of the year via a placing so as to fund future activities.

As a consequence of this fundraising and also the changes made to future royalty payments on its 58% owned BNG asset and the sale of its stake in the Galaz Contract Area, Roxi Petroleum’s long term future appears to be more stable than it was previously. And, while a weak oil price is unlikely to aid its performance, the company seems to be worth buying for the long term.

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

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »

Growth Shares

This UK stock could be like buying Nvidia in 2021

Jon Smith thinks he's missed the boat with Nvidia shares, but flags up a UK stock that has some very…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The FTSE 100’s Intertek delivers a bullish update — can the share price soar?

I’d describe Intertek as a quality business with a decent dividend income, but will the share price shoot the lights…

Read more »

Market Movers

Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for…

Read more »

Investing For Beginners

Down 43% in a year, I think this value stock is primed for a comeback

Jon Smith flags up why a FTSE 250 share has fallen so much in the recent past, but explains why…

Read more »