Today I am looking at the investment prospects of four FTSE gainers.
Copper-bottomed qualms
Shares in Antofagasta (LSE: ANTO) have been swept higher in recent days as value hunters have piled into the mining and energy sectors. The copper digger itself ascended 11% last week alone, but I believe this represents nothing more than a flash in the pan — the copper market remains in a state of chronic imbalance, and Bank of America commented just today that “miners have not reacted fast enough to the challenging macro-economic backdrop.”
Indeed, the broker estimates that a further 500,000 tonnes worth of copper needs to be removed from the market in order to stop the metal price plunging — copper slumped back below $5,000 per tonne again last month. Not surprisingly the City expects Antofagasta to swallow a 48% earnings slide in 2015, a third consecutive dip if realised that would leave the miner on a ridiculously-high P/E ratio of 36.5. Given the firm’s muddy earnings picture I find this massive premium difficult to justify.
All that glistens is not gold
It could be argued that silver and gold producer Fresnillo (LSE: FRES) is in better shape than many of the world’s mining plays. Traditionally, precious metals have been popular safe-havens in times of macroeconomic and geopolitical uncertainty, making the diggers less susceptible to the cyclical problems washing over the rest of the sector. And a 13% share price bump at Fresnillo between Monday and Friday, transpiring as Russian military action in Syria intensified, lends support to such a theory.
However, the role of gold as an island of calm in choppy waters has seemingly evaporated over the past couple of years, not helped by a low inflationary environment and subdued Asian demand. And silver — by far Fresnillo’s biggest market — is being whacked by falling industrial demand, not to mention reduced investment activity. I reckon the Mexican operator is likely to come under fresh pressure once buoyant market enthusiasm dissipates.
Investor returns set to motor higher
Diversified engineering giant GKN (LSE: GKN) has endured a torrid time over the past year as fears over falling Chinese car demand — combined with concerns over slowing aircraft orders — has weighed on investor appetite. The Volkswagen emissions scandal also took a chunk out of the firm’s share price when news broke last month, causing the Redditch business to slump to its cheapest for two-and-a-half years.
However, the market has viewed this is a prime buying opportunity and GKN rose 5% alone last week. The possibility of further share price weakness cannot be ruled out as accusations of mass test-rigging across the car industry are likely to continue for some time yet. But for more patient investors I reckon increasing plane and auto sales across the globe should deliver rich rewards. GKN currently deals on a prospective P/E rating of just 11.1, a level which I believe provides an excellent entry point.
Pumps play under pressure
I am not so optimistic about the profits picture over at industrial pump manufacturer Weir Group (LSE: WEIR), however. The stock ascended 7% during Monday-Friday, but I reckon this represents just a short-term gain as the prospect of further price weakness across the oil and metals segments — and consequent impact on operating and capex budgets — hammers demand for Weir’s hi-tech goods.
The Scottish business saw revenues topple 13% during January-June, to £1bn, while an 18% drop in total orders suggests that things aren’t about to improve any time soon. Weir hiked R&D spend by almost 40% in the period to help its earnings outlook, but I believe the firm carries too much risk at the current time as its key end markets struggle. Weir is expected to endure a 41% bottom-line slide in 2015 — resulting in a P/E ratio of 16.9 times — and I reckon further pain should be anticipated.
