Today I am running the rule over three recent FTSE-listed chargers.
A cast-iron ‘sell’
The amount of froth thrown up by rampant investor buying makes near-term share price directions in the commodities segment nigh-on impossible to predict.
Diversified giant Anglo American (LSE: AAL) has seen its share price surge 223% during the past three months, for example, including an additional 8% increase between last Monday and Friday.
Large swathes of short-covering — combined with slumping US dollar values — set metals and energy prices soaring skywards back in January, dragging the wider commodities sector with it.
But make no mistake: the long-term picture for these companies remains extremely dangerous, leaving the likes of Anglo American in line for a severe retracement.
Sure, iron ore prices — a material from which Anglo American sources around a third of total earnings — may continue to march higher, the steelmaking ingredient soaring to fresh multi-month highs around $70 per tonne. Values have gained fresh momentum following positive Chinese steel output data released in recent days.
Still, concerns remain as to whether the Asian powerhouse can keep this momentum going, a necessity given that the likes of BHP Billiton, Rio Tinto and Vale continue to extend capacity.
A slippery stock pick
Of course iron ore is not the only market swimming in excess material. Indeed, Anglo American’s other markets like coal, copper and diamonds are also battling against poor demand indicators.
And the supply/demand imbalance whacking the oil sector leaves Premier Oil (LSE: PMO) in danger of a meaty reversal, too. The fossil fuel producer gained 33% during Monday-Friday, thanks in no small part to a surge of buying activity in end-of-week business.
Investors remain hung up on a potential supply freeze from OPEC et al — speculation that is yet to bear fruit despite months of negotiation. Meanwhile, a steady build in global inventories continues to cast a cloud over Brent prices in the medium-term and beyond.
Recent share prices advances leave Anglo American dealing on a huge P/E rating of 26.4 times for 2015, a rating that does not fairly reflect the firm’s high risk profile, in my opinion. And the City expects Premier Oil to keep churning out losses until 2017 at the earliest. I reckon these factors make both stocks highly-unattractive investment destinations at the present time.
Banking issues
Financial goliath Royal Bank of Scotland (LSE: RBS) also received a boot higher between last Monday and Friday, the share advancing 7% during the period.
But I reckon the huge problems coming down the line leave little in the tank for RBS to keep charging. Massive divestment activity has significantly hampered the firm’s revenues outlook, and signs of economic moderation in the UK could heap further pressure on the firm’s growth prospects, particularly if the country topples out of the European Union in June.
And of course RBS is also battling the spectre of galloping PPI charges ahead of a possible 2018 claims deadline. Indeed, institution stashed away an extra £500m in last year’s final quarter to cover the cost of the mis-selling scandal.
The banking giant is currently dealing on a P/E rating of 13.3 times for 2015. And while a reasonable ‘paper’ valuation, I believe this value is far too expensive given that RBS’ major peers like Lloyds and Barclays are in much better shape and carry far cheaper valuations.
