As an investor, it easy to generalise. For example, at the present time, many investors are of the view that resources companies are worth avoiding. Similarly, other investors may be of the view that any stocks which are reliant on China for future growth should not be purchased, or that all stocks operating within the Eurozone will struggle to post positive growth numbers moving forward.
However, generalising can be dangerous since there are nearly always exceptions to the rule. As such, the resources sector, while enduring a very challenging period at the present time, could contain a number of companies that are not only worth investing it, but could deliver exceptional returns.
One such example is Genel Energy (LSE: GENL). Looking at its track record would be unlikely to cause many investors to buy a slice of the business since, in the last four years, it has been loss-making in two of them. And, with losses equating to £204m last year (versus a pretax profit of £122m in the previous year), it is clear that Genel is struggling to perform during the low oil price environment.
However, this look set to change. That’s because the company’s operations remain relatively robust (especially considering how closely located it is to the conflict in Iraq/Kurdistan) and, with the Kurdistan Regional Government (KRG) recently announcing a regular payment plan for producers in the region, investor sentiment could begin to pick up as Genel’s financial outlook starts to improve.
On this front, Genel is expected to post a pretax profit in each of the next two years, with £39m and £50m being forecast respectively at the present time. Certainly, these figures are considerably lower than the loss posted last year but, crucially, they show that Genel is able to cope with the dual challenges of a low oil price environment and political instability in the region in which it operates. And, with it having a price to book (P/B) ratio of 0.37, its margin of safety seems to be exceptionally wide and highly enticing for potential investors.
Similarly, Exillon Energy (LSE: EXI) may appear to be a stock worth avoiding right now. After all, its share price has fallen by 24% this year, which indicates that other investors are bearish on its prospects. However, the company has remained profitable throughout the current low oil price environment and, with it having a very lucrative asset base in Russia, is expected to continue to post upbeat profitability in each of the next two years.
In fact, Exillon Energy’s net profit is forecast to rise by 34% this year, and by a further 24% next year. These expectations mean that Exillon Energy trades on a price to earnings growth (PEG) ratio of just 0.1, which indicates that its shares are worth buying at the present time. And, with August’s production numbers breaking three consecutive months of declines, Exillon Energy’s share price may benefit from improving investor sentiment moving forward.
Similarly, engineering company Plexus (LSE: POS) also appears to offer excellent value for money – especially when its track record of growth is taken into account. For example, during the last four years it has been profitable throughout and has posted annualised earnings growth of over 61% during the period. Certainly, growth is due to disappoint this year, with it set to drop to just 5%, before rebounding next year with a figure of 44%.
And, while Plexus trades on a price to earnings (P/E) ratio of 33, its price to earnings growth (PEG) ratio of 0.5 indicates that now is a great time to buy a slice of the business.
