Today I am looking at three headline makers in Monday business.
Rio Tinto
The natural resources sector has rebounded strongly over the past week, recovering some ground after many of the world’s biggest diggers and drillers hit multi-decade lows. Of course, such patterns are to be expected as bargain hunters pile in, but I believe this recent activity represents nothing more than a brief halt in the sector’s relentless down trend.
In my opinion investors should resist the pull of toppling P/E ratios and huge dividend yields, as the prospect of lasting commodity price weakness threatens to keep crushing revenues across the sector.
While Glencore has been grabbing the news in recent weeks by shuttering much of its copper and zinc output, there is still a lack of co-ordinated action across the mining industry to tackle mountainous oversupply, a situation I believe should keep prices under the kibosh.
Indeed, the Financial Times reported overnight that Rio Tinto’s (LSE: RIO) head of copper and coal, Jean-Sebastien Jacques, has refused to slash metal output even though current prices fail to match the copper’s sickly fundamentals. On the contrary, the diversified giant continues to hike production across key assets to put higher-cost rivals out of business. I believe Rio Tinto is playing a dangerous game, however, and reckon that earnings could languish for some years to come.
Carillion
I am rather more optimistic over the earnings prospects of support services play Carillion (LSE: CLLN), however, and my faith was given a further boost following brilliant contract news on Monday. Indeed, the business was recently dealing more than 6% higher from last week’s close as buyers piled in.
The Midlands firm announced it had “signed contracts, secured preferred bidder positions and been awarded frameworks” worth a whopping £1.7bn since the end of June. As well as inking a £400m accord with Network Rail for a wide array of works, Carillion also made progress with a variety of other clients across the UK, Middle East and Canada.
And despite Monday’s share price rise, I believe Carillion still offers plenty of bang for one’s buck. A strong British economy is expected to put to an end to recent dips, and the bottom line is expected to stagnate in 2015 before bumping 3% higher next year. These projections create über-low P/E ratios of just 8.9 times and 8.7 times respectively, while Carillion’s progressive dividend policy chucks up gigantic yields of 6% and 6.2% for these years.
Jupiter Fund Management
The news over at Jupiter Fund Management (LSE: JUP) was also bubbly in start-of-week trading, pushing the company 0.4% higher on Monday. Despite a challenging trading environment the business witnessed net mutual fund inflows of £1.6bn during January-September, up 5% from a year earlier.
Total assets under management clocked in at £33.5bn as of the end of last month, a solid jump from £31.7bn at the corresponding point in 2014. Jupiter said that its strategy “to diversify by product, client type and geography” underpinned its strong performance, and rather encouragingly added that “our growth strategy and chosen markets have further room for expansion over time.”
This view is shared by the City, and Jupiter is expected to enjoy an 8% earnings bounce in 2015, resulting in a very attractive P/E reading of just 14.9 times. And this falls to 14.2 times for 2016 amid predictions of an extra 4% bottom-line rise. When you throw in heady dividend yields of 5.7% for 2015 and 5.9% for 2016, too, I reckon the fund manager is in great shape to provide plenty of upside.
