3 Resources Stocks Set To Beat The FTSE 100: BHP Billiton plc, Randgold Resources Limited And Amec Foster Wheeler PLC

These 3 resources companies appear to be excellent buys right now: BHP Billiton plc (LON: BLT), Randgold Resources Limited (LON: RRS) 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.

Shares in Randgold Resources (LSE: RRS) have soared by 55% since the turn of the year as the price of gold has made major gains. That’s because of uncertainty surrounding the future of the global economy, with gold being seen as a store of wealth and a relatively low-risk asset during a volatile period.

Gold has also risen in price due to a slower-than-expected rise in US interest rates. At the end of 2015, multiple rate rises were due this year, but the market is now pricing-in a much more dovish Federal Reserve. And with gold having historically been negatively correlated to interest rate changes, a lower-than-expected interest rate is good news for investors in Randgold Resources.

Looking ahead, Randgold Resources could continue to beat the FTSE 100. It’s forecast to increase its bottom line by 13% this year and by a further 26% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.2, which indicates that considerable capital gain potential is very much on the cards.

Overcoming challenges

Also offering the prospect of FTSE 100-beating performance is Amec Foster Wheeler (LSE: AMFW). Although the resources support services company is experiencing a highly challenging period at the present time as investment spending across the resources sector is slashed, investor sentiment towards the stock is improving. Evidence of this can be seen in Amec Foster Wheeler’s share price gain of 16% since the turn of the year, even though it today reported a pre-tax loss of £235m for the 2015 financial year. 

That loss, however, was in line with the company’s guidance and while dividends have been slashed to 29p per share from 43p per share last year, Amec Foster Wheeler’s adjusted performance shows that it remains a high quality business. The adjusted numbers remove non-cash charges such as the £308m impairment charge booked in 2015. While Amec Foster Wheeler is forecast to record a fall in adjusted earnings of 16% this year, its performance next year is expected to improve.

In fact, Amec Foster Wheeler is set to record earnings growth of 7% in 2017, which puts it on a price-to-earnings growth (PEG) ratio of just 1.2. With there being the potential for further rises in the prices of oil and other commodities moving forward, now could be a prudent time to buy a slice of the company due to its potential to beat the FTSE 100 over the medium-to-long term.

Brighter future

Meanwhile, BHP Billiton (LSE: BLT) is also up by 13% year-to-date and the diversified resources play seems to have significant long-term potential to deliver further capital gains. Certainly, in the short run its shares are likely to be highly volatile, but with a strong balance sheet and excellent cash flow, BHP appears to be well-placed to emerge from the current commodity crisis in a stronger position relative to its peers.

With BHP expected to more-than-double its earnings in the next financial year, its PEG ratio of 0.3 holds huge appeal. Clearly, forecasts are subject to change but with BHP having such a wide margin of safety as well as a diversified business that operates in relatively low-risk regions of the world, its long-term future appears to be very bright.

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 BHP Billiton. 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

Hand of a mature man opening a safety deposit box.
Investing Articles

If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they…

Read more »

Investing Articles

How I’d aim to earn £16,100 in passive income a year by investing £20k in a Stocks and Shares ISA

Harvey Jones is building a portfolio of high-yielding FTSE 100 dividend stocks that should give him a high and rising…

Read more »

Investing Articles

Down 8% in a month! The BP share price is screaming ‘buy, buy, buy’ at me right now 

When crude oil falls, the BP share price invariably follows. Harvey Jones is wondering whether this is the right point…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »

Investing Articles

If I’d bought Rolls-Royce shares a year ago, here’s what I’d have now

Rolls-Royce shares have been the big FTSE 100 success story of the past 12 months and more. And there's still…

Read more »

Young female analyst working at her desk in the office
Investing Articles

If the Dow’s heading for 60,000 by 2030, can the FTSE 100 index hit 12,000?

Strategist Ed Yardeni predicts a 50% rise for America’s Dow Jones Industrial Average over six years. Can the FTSE 100…

Read more »