Today I am looking at the ‘investability’ of three recent FTSE divers.
AstraZeneca
Pharmaceuticals giant AstraZeneca (LSE: AZN) has seen appetite for its shares dissipate once more over the past week, the London firm suffering a 3% stock price drop between last Monday and Friday. Although the share price has remained choppy, I believe recent weakness makes the business a terrific value pick at the present time.
AstraZeneca’s ongoing battle with patent expirations is hardly a secret, and the company is anticipated to record a fourth successive earnings drop in 2015 thanks to key losses, albeit by a modest 1%. Still, this leaves AstraZeneca dealing on a P/E ratio of 14.7 times, very attractive levels in my opinion given the firm’s exceptional product pipeline. Indeed, just this month AstraZeneca upgraded its revenues and profits estimates for the current year thanks to its terrific R&D labours.
Just last Friday the scientists’ Tagrisso lung cancer treatment was signed off by the US Food and Drug Administration (FDA), a drug that has been mooted as a future earnings driver and which perfectly demonstates the renewed urgency of its testing teams — it took just two-and-a-half years for the product to move from initial clinical testing to the FDA’s sign-off.
With the firm having doubled-down on research investment, not to mention maintaining its steady acquisition drive, I believe the future is extremely bright for the AstraZeneca.
BHP Billiton
With commodity prices continuing to collapse, I believe diversified mining play BHP Billiton (LSE: BLT) is likely to suffer even more share price pain. The resources giant saw its stock value erode 9% between last Monday and Friday, continuing the steady downtrend that has seen shares fall in excess of 40% in the last six months alone.
The tentative recovery in mining stocks since late September has eroded, the realisation that supply/demand imbalances are set to get much worse before they improve washing across markets once ahain. This sentiment has driven bellwether commodity copper to fresh six-year lows around $4,760 per tonne during Monday trade, while Brent crude is within a whisker of August’s multi-year troughs around $43 per barrel.
Make no mistake: a lack of industry consensus to reduce total supply levels, combined with a steady stream of poor economic data from China, means that commodity prices have much further to fall, in my opinion. BHP Billiton is expected to punch a 54% earnings loss for the year to June 2016, resulting in a quite-ridiculous P/E multiple of 24.6 times. And I expect the projected bottom-line dip to worsen in the coming months as material prices tank.
Petra Diamonds
Precious stones source Petra Diamonds (LSE: PDL) took another hefty smack in the midriff last week as it suffered another 21% share price decline. The company is in freefall after a string of profit warnings and worrisome diamond demand from China, and the company has shed 70% of its value over the past 12 months.
Trying to ‘catch a falling knife’ is precarious business at the best of times, but I believe Petra Diamonds is a share that investors should give particularly short shrift to. Revenues at the firm stagnated at $100.8m during July-September, even as stones production edged up to record levels. Indeed, Anglo American’s decision to slash diamond production to 29 million carats late last month, the third reduction so far this year, illustrates the market’s worsening demand imbalance.
Petra Diamonds is expected to ratchet up a further earnings decline in the 12 months to June 2016, this time by a chunky 14%. And although this provides an ultra-low P/E rating of 9.6 times, I believe the firm’s insipid growth prospects — combined with a steadily-surging debt pile — make the stock a risk too far at the present time.
