Today I’m looking at the investment prospects of three recent FTSE risers.
Stop digging!
Shares in mining goliath Anglo American (LSE: AAL) have stabilised since the start of January thanks to a solid uptick in the iron ore price. Many investors are speculating that the bottom has finally been ploughed, while extra US dollar weakness and a cancellation of ‘short’ positions has also sent shares in Anglo American hurtling skywards during the past week.
I’m convinced this strength presents nothing more than a fresh selling opportunity, however. Sure, iron ore prices may have received a welcome uptick more recently. But with Chinese economic cooling still accelerating, and domestic steelmaking activity sinking as the construction sector struggles, I reckon Anglo American’s surge is likely to peter out.
The London business is aggressively downscaling its operations to mitigate a poor earnings outlook, from ramping up cost savings and capex reductions to slashing around 60% of its asset base. But while wise in the current climate of falling commodity values, massive project sales are likely to seriously constrain profits growth once supply/demand imbalances eventually improve.
A medical marvel
Medicines giant Hikma Pharmaceuticals (LSE: HIK) had cause for further cheer last week as its share price continued to ignite. To say that the healthcare play has been volatile in recent months would be something of a colossal understatement, and I believe further turbulence can be expected in the weeks ahead as market sentiment shakes.
But in the long term I believe Hikma will prove a lucrative stock selection as earnings appear on course to surge.
All has not been rosy in the garden in recent times as weak demand for its Generics products forced the business to cut its full-year profit expectations for last year. Still, investors should be hugely confident in Hikma’s accelerating progress across the Middle East and North Africa, regions where healthcare spend continues to head higher.
And acquisitions like that of US-based Roxane Laboratories for $2.65bn last year are also bolstering the firm’s already-hot product pipeline, not to mention turbocharging its exposure to other white-hot geographies and product areas. I fully expect sales to explode at Hikma in the years ahead.
Gold bounce set to last?
I’m not so bullish over the long-term prospects of gold producer Acacia Mining (LSE: ACA) however, thanks to the fragile outlook for metal prices in 2016 and potentially beyond.
Investor appetite for the so-called ‘hard currency’ has exploded in recent sessions, a combination of dollar erosion and bubbly safe-haven buying pushing metal values markedly higher. Indeed, gold was dealing just shy of $1,180 per ounce just this morning, its most expensive since October.
Still, steady dollar appreciation put paid to commodity prices in 2015, and I expect these pressures to materialise again in the coming months as currency devaluation across the globe propels the greenback. And further Fed rate hikes can’t be ruled out either, despite poor economic data more recently casting some doubts over the scale of monetary tightening this year.
When you also factor-in a backdrop of low global inflation, not to mention still-weak physical gold demand in Asia, I believe the revenues outlook at Acacia — despite the potential impact of steady production increases — remains on shaky footing.
