Are Glencore PLC, Premier Oil PLC And Amec Foster Wheeler PLC Too Good To Miss?

Is now the right time to buy these 3 resource-focused stocks? Glencore PLC (LON: GLEN), Premier Oil PLC (LON: PMO) and Amec Foster Wheeler PLC (LON: AMFW)

| More on:

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.

During every investor’s career, there are golden opportunities which come along. At the time, though, such opportunities can be disguised as rather unappealing investments, since the outlook for either the company, its sector or the wider index is relatively poor. For example, during the credit crunch, the banking sector provided scope for staggering returns over the medium to long term, but there was a huge amount of fear surrounding its short term survival in the face of severe economic headwinds.

It’s a similar story today with the resources sector. The outlook is very downbeat since the prices of a whole host of commodities have fallen, demand has come under pressure as the Chinese economic growth story has become less appealing, and investor sentiment has declined. These factors have sent the share prices of a wide range of oil and gas, mining and resources support services companies tumbling.

This, though, has caused the risk/reward opportunity to swing increasingly in the investor’s favour. Certainly, the risk remains high: profitability is very likely to come under further pressure and, over the short to medium term, additional share price falls are a very realistic threat. However, the valuations of a number of companies now offer huge appeal and, as such, it could be worth buying a slice of them for the long haul.

For example, Amec Foster Wheeler (LSE: AMFW) posted a fall in its net profit of 8% last year and is expected to see a further decline in its earnings of 15% in the current year. As such, its share price has tumbled by 25% over the last year. However, looking ahead to next year, it is expected to deliver a rise in its bottom line of 3%, which has the potential to shift investor sentiment and push the company’s share price upwards.

Furthermore, Amec Foster Wheeler has a price to earnings (P/E) ratio of only 10.8, which indicates that there is vast scope for an upward rerating. And, with its shares having a yield of 5.7%, in the meantime it offers an excellent cash flow stream for its investors, too.

Similarly, Premier Oil (LSE: PMO) fell into loss-making territory last year after major writedowns to its asset base hurt its bottom line. And, in the current year, it is due to make another loss, which is a clear reason why its share price has slumped by 55% since the turn of the year.

Looking ahead, though, Premier Oil is expected to return to profitability next year, which has the potential to positively shift investor sentiment in the stock. Certainly, further asset write downs are very realistic and the company does have a disadvantage versus a number of its oil producer peers since it operates out of the North Sea, where costs are typically higher than in other locations. However, with a price to book value (P/B) ratio of just 0.3, there is huge upside potential.

Meanwhile, Glencore (LSE: GLEN) has been massively out of favour this year, with its shares sinking by 60% year-to-date. And, with the market being somewhat nervous regarding its financial standing, Glencore now trades on a price to earnings growth (PEG) ratio of just 0.5 and has a valuation that is considerably below book value. In fact, with Glencore trading on a P/B ratio of just 0.55 using its half-year net asset value, it appears to offer a relatively wide margin of safety.

Certainly, the company’s debt levels have been a cause for concern for many investors, but its recent placing appears to have settled the market’s nerves somewhat. As such, and while it will likely remain a volatile stock, Glencore could be worth buying for the long haul.

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

Investing Articles

1 AI stock to buy and hold for 10 years

AI spending's expected to soar in the next decade, according to most experts. Here's one stock to consider buying to…

Read more »

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 »