Three stocks which have enjoyed mixed fortunes but which all trade at seemingly attractive valuations are Centamin (LSE: CEY), Xcite Energy Limited (LSE: XEL) and Barratt Developments (LSE: BDEV).
In this article I’ll ask whether any of these firms have the potential to deliver life-changing profits for investors.
Centamin
Egypt-based gold miner Centamin has doubled the money of investors who were brave enough to buy in when the shares hit a low of 30p in summer 2013. That’s an impressive achievement considering that the price of gold has fallen steadily since then.
The shares have doubled because Centamin’s problems weren’t to do with costs or productivity. The company faced the possible loss of its mining licence due to alleged irregularities. That legal case is still going on but it’s on the back burner. The outcome is expected to be more favourable than it was two years ago.
Centamin itself is a surprisingly profitable business. The firm’s cash costs of production during the third quarter were $767 per ounce, while all-in sustaining costs were $918/oz. Both figures are well below the current gold price of around $1,070/oz., giving me confidence in broker forecasts for a profit of $83m this year.
Centamin has no debt and had net cash and equivalents of $216m at the end of September. The shares trade on a 2016 forecast P/E of 11 and offer a prospective yield of 2.7%. If you believe the risk of operating in Egypt is acceptable, then Centamin could be worth a look.
Xcite Energy
Xcite Energy remains a hot topic of discussion among private investors, but is effectively in limbo. The firm needs a partner to fund the development of its Bentley heavy oil field in the North Sea.
Bentley has a discounted net present value (NPV10) of $1.9bn. The company estimates the full field development life-cycle cost at $35 per barrel. On this basis, Bentley could be profitable even with oil trading below $50 per barrel.
The problem is that developing Bentley would require a lot of up-front investment. There’s no appetite for this among oil investors at the moment. Bentley’s heavy oil may also sell at a discount to lighter Brent crude, narrowing potential profit margins.
Xcite had a cash balance of $34m at the end of June. This gives the firm some breathing room, but I don’t think it rates a buy.
Barratt Development
Housebuilder Barratt is now down by nearly 15% from the record highs seen earlier this year. However, it’s worth putting that in perspective. Barratt shares are still worth 620% more than they were five years ago!
It would be easy to think that it’s too late to buy Barratt. Indeed, I’m pretty sure that the shares will not double in value again.
However, the housing market remains constrained by the limited supply of new housing. Prices appear stable and interest rates remains low. Barratt could continue to deliver fat profit margins and generous dividends for several more years.
Barratt shares currently trade on around 9.8 times 2016/17 forecast earnings. They offer a prospective yield of 5.2% for the current year, rising to 6.2% next year. That seems like an attractive income to me. Investors just need to be ready to sell when the market does start to turn.
