Should You Buy Last Week’s Winners Antofagasta plc, Royal Mail PLC And Nostrum Oil & Gas PLC?

Royston Wild discusses the investment prospects of Antofagasta plc (LON: ANTO), Royal Mail PLC (LON: RMG) and Nostrum Oil & Gas (LON: NOG).

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Today I am looking at whether investors should expect further gains at three FTSE-featured stocks.


Despite enduring weakness across commodity markets, many of the world’s biggest mining operators like Antofagasta (LSE: ANTO) have enjoyed a bump higher in recent days, and the red metal producer alone advanced 6% between last Monday and Friday.

But I believe such advances represent nothing more than ‘deadcat bounces’ as material prices slide look set to slide further. Indeed, Antofagasta has seen its share price erode 1.5% today as three-month copper futures have slipped further below $4,450 per tonne, hitting new six-and-a-half-year troughs in the process.

A worsening supply/demand imbalance is hardly doing trader sentiment any favours — the International Copper Study Group announced last week that the copper market flipped to a seasonally-adjusted surplus of about 100,000 tonnes during January-August. This compares with a comparative deficit of 430,000 tonnes in the same 2014 period.

It is therefore no surprise that Antofagasta is expected to clock up a third consecutive earnings dip in 2015, this time by an eye-watering 58%. With the copper market’s fundamentals gradually deteriorating, and Antofagasta dealing on an eye-watering P/E rating of 40.1 times, I believe the business is a highly-unappealing stock choice at the present time.

Royal Mail

Letter and packages giant Royal Mail (LSE: RMG) enjoyed a stunning ascent last week thanks in no small part to a better-than-expected half-year release. The market responded by sending the firm’s stock price 10% higher between last Monday and Friday, and I believe further chunky gains can be expected as contract wins and the growth of e-commerce drives parcels traffic.

Royal Mail advised that revenues dipped fractionally during April-September, to £4.4bn, although adjusted pre-tax profits fell by a sharper 16% to £240m. Still, investors were cheered by news of a 4% rise in UK parcel volumes during the period, and a 9% uptick at its European GLS division. Meanwhile, extensive cost-cutting also continues to click through the gears, and Royal Mail advised that operating costs are likely to fall by “at least” 1% in the current year.

 Despite last week’s bubbly share price gains, I believe that Royal Mail still offers exceptional value for money. An expected 26% earnings slide in the year to March 2016 leaves the business on a P/E rating of just 13.2 times, and this reading slips to 13.2 for 2017 amid expectations of a 6% bottom-line recovery. On top of this, predictions of further dividend rises throw up market-busting yields of 4.4% and 4.6% for 2016 and 2017 correspondingly.

Nostrum Oil & Gas

Like Antofagasta, fossil fuel play Nostrum Oil & Gas (LSE: NOG) defied a backcloth of sinking commodity prices to post strong gains last week, and the London-based business printed an 6% advance between Monday and Friday.

Still, stocks such as Nostrum are prone to bouts of extreme volatility in the current climate, and the business has seen these gains entirely wiped out during the course of trading today. And with little surprise — Brent crude has fallen yet again, and is within a whisker of striking fresh multi-year nadirs around $42 per barrel. Compounding these troubles, Nostrum has also been forced to take the hatchet to its 2015 output targets recently due to unexpected repair work, as well as other production issues.

The oil specialist is expected to see earnings crash 82% lower in 2015, a touted result that leaves it dealing on a frankly-ridiculous P/E ratio of 37.1 times. Like Antofagasta, I would consider a reading closer to the bargain benchmark of 10 times to be a fairer reflection of the risks facing Nostrum, and fully expect share prices to sink accordingly.

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 considered so you should consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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