Every day, investors see the value of their investments rise and fall, often on what appears to be nothing more than emotion or passing investor sentiment.. We have seen this theme play out across the year, as the oil price crashed and the market sentiment was rocked.
While it is true that there are many factors involved, any one of which could impact on an investment thesis, all of them should be considered before making an investment in any company. With some companies even more care is required, particularly if they rely on the price of a commodity, or if the business has lost its way in recent times.
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However, it is often the case that sentiment can become too negative on a share. We saw this happen this week when shares in Weir Group jumped by around 10% on what I felt was a fairly weak interim management statement. The shares only gained because the market had priced in much more disappointing news.
So on this basis I have selected four companies all due to give trading updates this week. As you can see from the 12-month chart below, all of these shares have been punished of late. But is this justified or an overreaction? Let’s take a look…
Tullow on Wednesday
All eyes will be on Tullow (LSE: TLW) on Wednesday, when the company is scheduled to update the market about its operations and management expectations for the full year. In the most recent market update, back in August, management said that the business was on track to meet the 2015 production guidance and that it would continue to deleverage the business.The deleveraging is important and, in my view, the debt pile is putting negative pressure on the share price, given that the net debt figure is higher than the entire market capitalisation!
Any good news here good could see the shares recover some of the ground lost over the last 12 months.
Premier and Rolls-Royce on Thursday
Investors will be hoping for some positives to take from the under-pressure Premier Oil (LSE: PMO) when management updates the market this week. Though the shares are up from their recent lows, there could be more to go. When investors last heard from the company in September they were told that 60% of H2 2015 production had been hedged at $92/bbl. and 30% of 2016 production at $68/bbl.
Additionally, as a result of significant cost savings, management expected 2015 costs of $16/boe. This should assist in servicing the debt pile, which is material. However, management has been proactive here by renegotiating the banking covenants out to mid-2017, giving the business some breathing space. Further good news in production and cost efficiencies could see a continuation in the recovery of the share price.
Also reporting on the same day is Aerospace blue-chip Roll-Royce (LSE: RR). Investors will be looking for evidence that the company has started to turn a corner in what has turned out to be a rather difficult year for the company.
However, enter Warren East, the new CEO, and US hedge fund Value Act, the proud owner of over 5% of the company. If the two can work together effectively then investors could be in line to realise a decent profit. However, should opinions differ we could see a slower turnaround. At this stage it is unclear whether the hedge fund management will push to see the company broken up in order to realise value, or whether they will support the proposals from the operating review. Investors can expect an update on this front towards the end of the month.
Unlucky for some?
Superstitious investors will have to hold onto something as Rotork (LSE: ROR), the UK-based designer and manufacturer of actuators and flow control equipment, updates the market on current trading on Friday.
Investors will be hoping that trading hasn’t deteriorated from the last update, in September, when the company announced that some orders had been delayed until 2016, thus impacting the results for 2015.
Helpfully, management guided the market towards what their expectations were for the year. Revenue was now expected to be in the range of £530m-£555m, with adjusted operating profit in the range of £120m-£130m.
Clearly, if this is adjusted downwards then I would expect the shares to sell off. However, if the business environment has improved then we could see the shares regain their composure.
You pay your money…
… you take your chance.
So here we have four interesting propositions, which could enrich your portfolio with some positive news flow. However, should the outlook be rather more gloomy, then I would expect to see their share prices weaken further.