Often investors are torn when they have several companies they want to invest in, but limited funds. That is what I was faced with when I looked at Tullow Oil (LSE: TLW) and Sirius Minerals (LSE: SXX) recently.
Both firms have seen sharp deteriorations in their respective share prices over the course of this year, and while I wouldn’t call them fallen angels, they both have a degree of worthiness for an investor. So which should I pick to put my full £1,000 into?
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Let us start with Tullow. It has been in the news a lot recently due to announcements in November and December about cutting oil output in places such as Ghana, along with the shock departure of the CEO and exploration director. This has seen the share price fall almost 63% in the past year.
When we compare the share price fall to Sirius, which has fallen almost 83% in the past year, Tullow does appear to be in better shape for an investor as it still holds a market capitalization, which it can use to leverage (be it through bank funding, stock buybacks, etc).
Further, Tullow could be a smarter play for an investor looking to buy on the cheap as it is a more diversified company than Sirius. Tullow has 67 producing oilfields, and so while output production forecasts have come lower, it will likely look to see how it can make up some shortfall from some of the oilfields that are performing well. For Sirius, it is incredibly concentrated on the success of the North Yorkshire polyhalite project (almost to the extent that it is boom or bust).
Sirius too has had a lot of negative news recently, stemming the fact that it had to pull a funding round due to “poor market conditions.” Some flag this as just a clouded way of saying the business did not have enough demand to raise fresh funds, which puts the business in jeopardy of running out of cash.
However, Sirius still has the original CEO and founder Christopher Fraser at the helm, along with the senior management team. In comparison to Tullow, the stability of the leadership at Sirius is a major plus when looking to invest.
For an investor looking for capital appreciation, my point above regarding the greater fall in the share price of Sirius may actually make it more appealing. In theory, the firm that has fallen most aggressively has greater upside potential to return to levels seen historically. I do not agree that is case here, but can see the viability.
Overall, I would choose to invest in Tullow over Sirius. Despite the change of CEO, I think it is in a better position to ride out a share price sell-off. Added to this is the real possibility of Sirius running out of cash and going out of business, which Tullow seems to be further away from at the moment.