Rockhopper Exploration Plc, Genel Energy PLC & Petrofac Limited: 3 Enticing Growth Opportunities?

Are these 3 stocks worth buying for their growth prospects? Rockhopper Exploration Plc (LON: RKH), Genel Energy PLC (LON: GENL) and Petrofac Limited (LON: PFC)

| 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.

It may seem rather strange to mention resources companies and the word ‘growth’ in the same sentence. After all, the sector has been ravaged by falling commodity prices which have left the vast majority of its incumbents with declining top lines, collapsing bottom lines and major share price falls.

However, drilling deep into the sector, there are a number of stocks which are forecast to post relatively impressive earnings figures over the next couple of years. One such company is Petrofac (LSE: PFC). Its net profit is due to drop by 70% in the current year and this has been a key reason why its shares are now priced at only two-thirds of their level from a year ago.

Looking to next year, though, Petrofac is expected to return to strong growth and its net profit is expected to rise by as much as 178%. This would offset the bulk of the current year’s earnings fall and, despite having such upbeat prospects for 2016, Petrofac trades on a forward price to earnings (P/E) ratio of only 8.4. This indicates that there is significant upward rerating potential and, while guidance could be downgraded, there appears to be a sufficiently wide margin of safety to merit investment in Petrofac at the present time.

Also offering a relatively wide margin of safety is Genel Energy (LSE: GENL). Clearly, this is a prerequisite for any investor, but is even more relevant in Genel’s case due to the major risks that it faces.

For example, the region in which it operates continues to suffer from considerable political instability, with recent world events heightening the uncertainty surrounding the future of Iraq/Kurdistan. As such, Genel’s future operational capacity could be put in doubt if the outlook deteriorates. Furthermore, Genel has not received in full monies owed by the Kurdistan Regional Government (KRG) and, while it has now committed to a payment plan, there is still a risk that changes to the situation in the region place a huge alternative demand on cash resources over the short to medium term.

Despite this, Genel Energy could still be a sound long term buy. Its asset base is highly appealing and, with it trading on a price to earnings growth (PEG) ratio of 0.8, it offers upside potential for less risk averse investors.

Meanwhile, Rockhopper Exploration (LSE: RKH) has enjoyed a successful 2015 with regards to its drilling programme. It has made two successful discoveries in the North Falklands basin; both of which were somewhat unexpected since the South Falklands basin was forecast to have the greater potential of the two. And, with the company’s European assets also moving in the right direction in terms of production potential, the company’s future is relatively bright.

Like any small exploration company, there are risks to Rockhopper’s long term story. A further fall in the price of oil is an obvious potential problem, while the company’s partners may also endure disappointing financial performance and put the prospects for the jointly-owned asset under question. That said, Rockhopper’s price to book value (P/B) ratio of 0.6 indicates that a relatively wide margin of safety is on offer and, with strong long term growth potential, it could be a shrewd buy for investors who can live with a high degree of uncertainty.

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 owns shares of Petrofac. The Motley Fool UK owns shares of and has recommended Petrofac. 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

Up 51% in 2024, this FTSE 250 stock is flying!

This writer takes a look at one high-flying FTSE 250 share that still looks good value despite surging to an…

Read more »

Investing For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »