With the stock market having fallen in recent months, there could be buying opportunities on offer. Certainly, the prospects for the world economy may remain upbeat, but investors are now more cautious about the outlook for inflation and interest rate rises. As such, further falls in stock market levels cannot be ruled out.
For long-term investors, this could represent a buying opportunity. With that in mind, here are two shares which could deliver improving share price performance due to their low valuations.
Changing business
Reporting on Monday was oil and gas engineering services business Plexus (LSE: POS). The company reported its interim results, which showed that it is experiencing a period of major transition. The business has been through a period of low activity levels in recent years, and this has put significant pressure on its financial performance.
In the six months to 31 December, those difficulties continued. As such, dividends remain suspended and the near-term prospects for the company appear to be challenging. For example, in the current financial year it is expected to record a net loss for the third consecutive year.
However, Plexus could have recovery potential. The company recently sold its jack-up exploration application business, and this may provide it with the capital to focus on other areas that could offer strong growth. And with the oil price having risen, activity levels across the oil and gas industry could increase.
Certainly, the stock is high risk at the present time. Its share price could be volatile and come under pressure. However, with the potential for growth across the industry and its shares now being priced at 75% less than they were five years ago, a turnaround opportunity could be on offer.
Improving outlook
Also offering growth potential within the oil and gas sector is Wood Group (LSE: WG). The energy services company has experienced a difficult period, with its bottom line falling in each of the last two years. This has been at least partly due to the lower oil price which has caused oil producers to cut back on exploration spending.
However, Wood Group has been able to capitalise on lower valuations across the industry via its combination with Amec Foster Wheeler. This could provide it with a stronger foundation for growth and lead to a more robust outlook for the business. And with its bottom line due to return to positive growth in the current year, its prospects appear to be improving.
Looking ahead, Wood Group is expected to report a rise in its bottom line of 23% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.5, which suggests that it offers a wide margin of safety. Therefore, with the prospects for the oil and gas industry on the up, now could be the perfect time to buy it for the long run.
