Why the KAZ Minerals share price could outperform the FTSE 100

KAZ Minerals plc (LON: KAZ) appears to offer stronger prospects than the FTSE 100 (INDEXFTSE: UKX).

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The recent performance of the KAZ Minerals (LSE: KAZ) share price has been hugely disappointing. It has fallen by 50% in less than four months as investors have become increasingly bearish about its prospects following the decision to acquire a copper project in Russia for $900m.

This could mean that the stock now offers a wider margin of safety. It could even outperform the FTSE 100 as a result of its low valuation. However, it’s not the only stock that could be worth a closer look at the present time. Reporting on Thursday was a FTSE 100 stock which appears to offer a favourable risk/reward ratio.

Improving prospects

The stock in question is tourism company TUI (LSE: TUI). It released a pre-close trading update which confirmed that it is performing in line with expectations. It is set to post its fourth consecutive year of double-digit growth in underlying EBITA (earnings before interest, tax and amortisation). It has been able to expand its hotel and cruise offer, with occupancies and yields remaining high. It has seen growth in the number of customers purchasing holidays across all of its major markets, even though hot weather in Northern Europe has caused a slowdown in the wider industry.

Looking ahead, TUI is forecast to post a rise in its bottom line of 8% in the current year, followed by further growth of 14% next year. Despite this, the company trades on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it could offer a wide margin of safety. As such, and while the wider travel industry faces an uncertain outlook, the company’s share price performance could be ahead of the FTSE 100 over the medium term.

Recovery potential

The turnaround potential of KAZ Minerals seems to be high. Although further share price falls cannot be ruled out due to investor sentiment being weak, the financial outlook of the business seems to be improving. For example, over the next two years it is expected to report a rise in earnings of 13% and 11%. This has the potential to catalyse investor sentiment – especially when the stock trades on a PEG ratio of just 0.5.

With there being the potential for a supply deficit in copper over the medium term, the prospects for the business seem to be improving. Certainly, there is risk in undertaking the recently-announced acquisition, but in an industry which could still offer high returns in the long run, it could prove to be a sound move.

The KAZ Minerals share price has a history of volatility. Changes in foreign exchange rates and in the outlook for the world economy can, among other factors, cause uncertainty. While this situation could continue, ultimately the company appears to be delivering improved operational performance and trades at a low valuation. As such, now could be the right time to buy it for the long term.

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 has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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