Unless you’re shorting the shares, a price slump is bad news But if you’re not already in, it can give you a possible recovery opportunity — unless, of course, the price truly deserves to be in the dumps.
That, I think, may well be the case at Standard Chartered (LSE: STAN), whose shares have lost 23% in the past 12 months,falling to 728p, and are down 63% in five years — although a 16% uptick since the end of September suggests some people see potential for a turnaround.
Standard’s problem is not merely that is it heavily exposed to China, although around 40% of last years profit came from China and Hong Kong and there’s a bit of an overstretched debt crisis building there, but also that its performance in Korea has been abominable and its previous board of directors were thought by many to have hung on too long after they’d lost the confidence of key investors.
Under-fire CEO Peter Sands stood down in June to be replaced by Bill Winters, though it’s too early yet to tell if he’s going to bring a change in fortunes. At the interim stage, pre-tax profit was down 44% with normalised EPS down 50%, and the dividend was very sensibly slashed by 50% — although I’d have liked to see a bigger cut. Analysts do have a 17% EPS recovery penciled in for 2016, but with a P/E of 13 for this year, I think Standard Chartered is still way too risky — it’s a Wait and See stock for me.
Copper-bottomed opportunity?
But what about copper miner Antofagasta (LSE: ANTO), whose shares have lost two thirds of their value since the end of 2010? The fall to 529p is down to the slump in metals and minerals prices that has blighted the whole mining sector, of course, but surely there’ll eventually be a recovery… won’t there?
It’s looking like the price of copper has been stabilizing a little since the beginning of September, though at Q3 time Antofagasta reported an 11% fall in copper production for the nine months, with gold production dropping 16%. But the firm has managed to get its costs of production down, and, after a 50% fall in EPS forecast for this year, the 65% rebound pencilled in for 2016 would drop the P/E to around 20.
That’s perhaps a little high still, but if we really are at the bottom of an earnings cycle, investors could be in for a profitable longer term future.
Aerospace nightmare
And finally there’s Meggitt (LSE: MGGT), whose shares are down 21% in the past 12 months to 353p. That’s entirely as a result of a profit warning on Wednesday, which sent the price into tailspin, but it does destroy the 47% gain the shares were on over five years — they’re up a mere 6% now.
We’re looking at a forward P/E of around 10, but that’s based on pre-warning forecasts and will rise when they’re adjusted. And I really don’t like the firm’s choice of terminology when they say underlying operating profit will be “meaningfully below” the previous estimate of £369m — that suggests very bad news.
And profit warnings tend to come in threes, don’t they? I wouldn’t touch Meggitt until I see what the full year actually brings.
