BP plc And Amec Foster Wheeler PLC: 2 Top Drawer Investments?

Are these 2 stocks worth buying right now? BP plc (LON: BP) and Amec Foster Wheeler PLC (LON: AMFW).

| 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.

In order to make serious capital gains on shares, history tells us that the time to buy is at the bottom. Clearly, this means taking on a substantial amount of risk since no stock or stock market ever trades at a low point when the outlook is bright and upbeat. Buying at what appears to be the bottom can lead to short term losses, high volatility and a lot of sleepless nights.

High quality, low valuation

This appears to be the current situation in the resources sector, with a number of high quality companies in this space trading on relatively low valuations. For example, Amec Foster Wheeler (LSE: AMFW) has a forward price-to-earnings (P/E) ratio of just 6.6, with this figure taking into account the forecast fall in earnings of 27% in the current financial year.

Looking ahead to next year, Amec Foster Wheeler’s net profit is due to flatline. While it would be a disappointing result compared to the wider index’s growth rate, it could positively catalyse investor sentiment in the company as investors see that the current year’s declines in profitability aren’t repeated. As such, the company’s shares could benefit from an upward rerating, with them having an exceptionally wide margin of safety at the present time.

Furthermore, Amec Foster Wheeler is increasing its cost saving targets. As highlighted in its recent update, it’ s responding to the cutbacks in capex across the resources industry and, while these are set to continue, it remains well-positioned to not only survive the present challenges, but also offer impressive capital gains over the long run.

Long term buy

Similarly, BP (LSE: BP) also appears to be a strong long term buy at the present time. Its shares trade on a price-to-book value (P/B) ratio of just 0.88 and as such, seem to offer considerable upside.

Clearly, BP’s future is closely linked to the price of oil, and in the short term the price of black gold could sink further. That’s because the supply glut that’s keeping prices on a downward trend is showing little sign of abating, with the price of oil falling heavily since OPEC members failed to agree on a supply ceiling at their recent meeting. This, plus weakening demand, could leave many investors feeling as though oil is a bad investment at the present time.

While this may be the case in the short run, longer term world energy use is set to increase by 56% between 2010 and 2040. Clearly, this is a very long term horizon, but it indicates that the current predicament for oil is unlikely to be a permanent feature of the energy market. Certainly, renewables will make up a greater proportion of the energy mix, but oil and other fossil fuels are still set to represent 80% of global energy use by 2040.

So while BP is struggling to cope with a low oil price at the present time, its valuation and long term growth prospects remain very sound. For investors who can buy, wait and not worry about short term volatility, it seems to be a very enticing purchase for 2016 and beyond.

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 BP. 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.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

6.9% dividend yield! 2 cheap stocks to consider for a £1,380 passive income

Looking for a market-beating passive income? These FTSE 100 and FTSE 250 dividend stocks could provide a healthy second income…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

Potentially 34% undervalued, should I be watching the boohoo share price?

The boohoo share price has seen a rocky few years, but with signs that the economy is improving, could this…

Read more »

Investing Articles

Is the Amazon share price primed for a drop?

The Amazon share price has been on a tear for the last year, but can this trend continue? Gordon Best…

Read more »

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »