Speculation 

I have not been bullish on commodities for a very long time, but I did not expect a 70% drop in Glencore’s equity valuation in 2015. Its 52-week range is 66.6p-344.5p, and the low end of that range was reached on Monday when GLEN plunged 30% the back of comments from analysts at Investec, who argued that nearly all of its the equity value could evaporate — “debt becomes 100% of enterprise value and the company is solely working to repay debt obligations,” they added.

Facts 

Since its five-year peak of 370 points in April 2011, the CRB Commodity Index has fallen 47%. Over the period, Glencore has lost almost 80% of value — but the performance of the two had been very similar between May 2011 and 27 April 2015 (CRB -35% vs GLEN -40%). 

It doesn’t take a financial guru to understand that if spot metal prices remain around these levels or drop further, Glencore’s equity could be worth peanuts — but then, about the entire commodity sector would go bust, and the top miners will engineer a way to pursue consolidation. 

BNP Paribas shares my view. Its analysts argued today that Glencore’s “current valuation is discounting $3,500/t copper vs spot at $5,000/t; at this price 79% of the industry would be in cash losses on a C1 cash cost and 82% of the industry would not be able to cover its maintenance capex. Unsustainable obviously.”

But why has Glencore diverged from the CRB Index since late April this year? 

200p or 400p?

Leverage and market volatility — this is a dreadful combination for value. 

What I have seen over the last two quarters is that risk-off trades have punished the shareholders of companies whose balance sheets are severely stretched — and Glencore, whose equity value is currently worth less than half the value of its net debt, is one of them. As I already argued, there are risks surrounding Glencore and its restructuring, but 76% of its equity value is represented by hard cash that can be drawn without notice. 

While its price-to-book value signals stress, the value of its current assets (excluding cash and equivalents) is 220p a share if we value them at 100% of their book value; I am also happy to suggest that valuation for Glencore’s equity because the banks who are close to Glencore would have more to lose than Glencore itself if one of their core clients went under — two of the three banks that priced its IPO at 530p a share in 2011 also arranged its 125p-a-share cash call on 16 September. 

Debt

In June, Glencore rolled over $15.3bn of bank debt that was priced “at $ LIBOR plus a margin ranging from 40 to 45 basis points per annum“. Glencore was already troubled, but paid a ridiculously low spread over Libor to refinance its debt obligations. That’s because the pricing of loans in the primary market reflects relationships and ancillary business potential more than the credit rating. Some 60 banks reportedly joined the syndicate, and the deal was oversubscribed. 

So, regardless of short-term reaction this week — widening credit default swaps spreads and plummeting secondary debt prices — my focus remains on the left side of the balance sheet rather than on the liabilities, but then a price target of 400p a share would have to be based on certain assumptions for other less liquid assets, and it’s too early for that, based on its restructuring plan. 

The speed at which Glencore will reach 200p a share, of course, depends a multitude of and factors, including volatility — well, I think the first-half of 2016 could be a particularly good one for us all. 

The post Is Glencore PLC Going To Hit 200p Or 400p By Mid-2016? appeared first on The Motley Fool UK.

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Alessandro Pasetti has no position in any shares mentioned. 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.

If estimates from analysts are correct, there’s a great chance you could record pre-tax returns of about 100% or more by investing in Shell (LSE: RDSB) and Rio Tinto (LSE: RIO).

I have very different views on Rio, but Shell is indeed tempting. 

Upside 

The average price target from brokers is 42% higher than Shell’s current stock price of 1,600, according to consensus estimates from Thomson Reuters — and that implies a price target above 2,200p for most analysts.

If the most bullish brokers are right, however, upside could be as much as 170% from Shell’s current level. 

I don’t actually know if you’ll ever record a performance north of 100% investing in Shell in this environment, but I know that under a base-case scenario where oil prices rise between 20% and 30% from their current levels, and based on the possible liquidation value of its assets, its shares should be worth at least 2,000p — and that partly excludes some of the additional benefits that its tie-up with BG may bring.

If I am right, its forward yield will get closer to 6% from its current level of 7.7%. 

It’s virtually meaningless to pay attention either to its 52-week range of 1,502.5p–2,431.5p or to its trading multiples because the “New Shell” that will emerge from the combination with BG — and I am convinced the deal will go through — will be a very different beast. It is useful to consider, though, that key to value creation will be flawless execution from its management team, and this remains the biggest risk for shareholders. 

Management risk also plays a big part when it comes to deciding whether or not to invest in Rio.

Downside 

Most analysts seem to agree that Rio is undervalued by about 30%, and those in the bull camp argue for capital gains in the region of 80% or more. Frankly, I am not convinced that Rio is an appealing equity investment, although the $606m sale of a 40% stake in the Bengalla coal mine in eastern Australia this week was a step in the right direction. 

Its stock should trade at a 20% to 30% discount to its current level based on the fair value of its assets, in my opinion, and such a view is also supported by uncertainty surrounding its payout ratio — a less generous dividend policy is not priced into its stock right now, in my view. I’d be more comfortable with a forward yield closer to 5%, which implies a dividend cut of 20% this year, assuming a constant stock price at 2,200p.

Finally, while I do not think that a rights issue is strictly necessary over the next six months, the debate remains open on whether Rio will be able to withstand the prolonged pressure stemming from a very unpleasant market environment for commodity prices. Its current valuation of 2,230 is only 6% above the low end of its 52-week range (2,090.5p-3,280p), and a technical analyst could argue about a support trendline around this level. 

The post What Could Go Badly Wrong With Royal Dutch Shell Plc & Rio Tinto plc At These Prices? appeared first on The Motley Fool UK.

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Alessandro Pasetti has no position in any shares mentioned. 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.

Elsewhere, if you are tempted to sell BT (LSE: BT-A), you ought to be patient at least until its interim results are due at the end of October. In the meantime, you should monitor both DCC (LSE: DCC) and Entertainment One (LSE: ETO). The stock of the latter has fallen almost 10% today…

Low-Ball Bid

Darty hit a 52-week high of 95.25p today as it emerged that it had received a proposal from France’s Groupe Fnac “regarding an all-share offer (…) on the basis of 1 Fnac share for every 39 Darty shares held“. The proposal currently values Darty at 101p per share based on its closing price on 29 September 2015, the group said — adding that the board will explore the benefits of such  a tie-up. Shareholders will be entitled to receive a final dividend of 2.625 cents. A formal offer must be announced by 28 October. 

A low-ball bid financed by equity isn’t exactly the best deal ever, so Fnac could up the ante — I’d sell my holdings today if I were invested, though. If a deal is not agreed, the risk is that your Darty investment will plunge to anywhere between 70p and 80p, hovering around that level for some time based on its growth prospects, core margins and trading multiples. 

Safety

BT is a rather more safe investment, operating in a sector that has inevitably become more volatile in recent weeks on both sides of the Atlantic. Its stock price is getting closer to a 52-week low of 381p; with its 3.4% forward yield, which is a good gauge of risk, I don’t think that BT stock will fall much further, although the enthusiasm surrounding its acquisition-led strategy seems to have vanished.

BT is fairly priced right now but based on its projected growth rate and several other key financial metrics, it is hard to envisage meaningful capital appreciation from a level of 430p/440p, which is well below the average price target from brokers (500p), according to estimates from Thomson Reuters. 

I’ll buy it when I retire, maybe. I want growth right now. 

Growth

I like DCC’s corporate strategy, which combines with a strong portfolio of assets and a clean balance sheet.

Its shares are up 37% this year, and have proved to be particularly resilient in recent weeks. If anything, they look a tad pricey based on forward net earnings multiples of 22x and 20x in 2016 and 2017, respectively. Yet if its management team continues to deliver, earnings and dividends will nicely rise over the period, likely supporting a valuation higher than 5,000p — its stock currently trades around 4,900p, which is 5% below the average price target from brokers. 

I would certainly choose DCC over Entertainment One, which is pursuing a very aggressive growth strategy. Today it announced that it had agreed to acquire 70% of Astley Baker Davies (ABD) for £140m, which implies a rich valuation based on cash flow multiples that are higher than its own. If ABD’s Peppa Pig doesn’t ring a bell, it’s because you do not have kids. 

A fully underwritten £200m rights issue (25% of its market cap) backed the deal, and was arranged by JP Morgan and Credit Suisse. Well, I don’t dislike Entertainment One (my four year-old kid would recommend it following today’s news), and I think its shares are not particularly expensive — but discipline in acquisitions is essential, and clearly the group is pulling out all the stops to chase growth, and that is a strategy that could harm long-term value. 

The post Should You Sell Darty PLC & BT Group plc To Buy DCC PLC & Entertainment One Ltd Today? appeared first on The Motley Fool UK.

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Alessandro Pasetti has no position in any shares mentioned. 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.

Dreamland?

Castleton Technology (LSE: CTE) is less likely to deliver that kind of performance than Churchill Mining (LSE: CHL), in my view, but its stock price could surely double, although a rally from 3p to 6p would put its valuation in the danger zone, based on fundamentals. 

I would probably stick with Sirius Minerals (LSE: SXX) at 18p a share if I were to bet on any company worth less than £500m right now. The downside, of course, is that you may end up being disappointed at the end of the process, particularly if you chose Churchill. 

Intangibles

Castleton’s stock price ranged between 0.92p and 3.61p over the last 52 weeks, and its stock currently trades at 3p (+42% year to date), which implies a market cap of £45m. 

Last week it reported a trading update for the year ended 31 March, which showed revenue at £6m and widening economic losses due to one-off charges. The market is pleased with its aggressive strategy — Castleton is mopping up assets — but the value of intangibles on its balance sheet is significant (at 73% of its total assets), while its stock is very expensive based on its price-to-tangible book value. 

Formerly Redstone, this software support services group could be a decent bet, but I’d not underestimate the risks associated to its strategy. Furthermore, stiff competition in the sector could limit short-term upside. 

Arbitration 

We know that Churchill’s equity value hinges on the outcome of the international arbitration cases that Churchill and its Australian subsidiary Planet Mining are pursuing against the Republic of Indonesia. The arbitration arises from the unlawful revocation of the mining licenses relating to the East Kutai Coal Project in East Kalimantan, in which Churchill and Planet held a 75% interest, Churchill insisted in its latest update. Its stock has halved since a record high in June, and its market cap now stands at £34m.

Churchill estimates that the damage can be quantified at about $1.3bn; consider that capital appreciation in the region of 1,000% from its current stock price of about 22p would yield a market cap of £320, or about $500m. That’s less than 50% of the value that Churchill claims it could fetch!

That said, the government of Indonesia is well known in the international community for playing hard ball in these situations, and I am not sure that we might still have an investment case if it simply decided not to pay or if proceeds were much lower than expected. 

Financing

Sirius is fairly priced right now, at least based on several elements that can hardly be quantified!

The biggest event that should emerge over the next six months should be the arrangement of a comprehensive financing package backing the development of its flagship York Potash project in York. 

There has not been big news to report recently, but latest signs are encouraging and point to an investment that could be properly priced right now — and one that could still be a bargain at over 40p a share if all pieces of its York project fall into place. 

The post Are Castleton Technology PLC & Churchill Mining Plc More Likely To Double In Value Than Sirius Minerals PLC? appeared first on The Motley Fool UK.

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With that in mind, considering that the FTSE 100 is badly hurt, and that the rainy days might be here to stay — in which case, should you buy ARM Holdings (LSE: ARM) and Antofagasta (LSE: ANTO) instead of Royal Mail (LSE: RMG)? 

Real Life

Record sales at Apple are great news for ARM, whose current stock price of 919p reflects broader market volatility than any fundamental issue with the business. In fact, you could buy ARM stock now and pay about 36x and 30x its forward earnings for 2015 and 2106, respectively, but trading metrics drop by 30% once they are based on projections for its adjusted operating cash flow.

That is not a lot, really, while the net present value of future cash flows to equity yields my personal price target of 1,150p. 

Between 2015 and 2017, ARM is expected to add about £200m of revenue each year — trailing sales stand at £795m. On top of that, roughly £100m of operating income will be generated, which should yield a compound annual growth rate of between 25% and 28% for earnings per share and dividends per share.

There’s no debt on its books. 

If that’s not enough, you must either forget about equity investing or you must be looking for a riskier investment — if the latter is the case, then Antofagasta could be your top pick.

Mr Copper 

Mr Copper is giving sleepless nights to Antofagasta shareholders, but they should live in the knowledge that the value of their holdings, which is currently very close to their 52-week low of 476p, is destined to be more resilient than that of all other major miners given that Anto’s capital structure — how much debt/equity the miner holds on its books — is much more balanced than that of its rivals. 

That is not to say that their lower dividend yield is much safer, however. 

Still, you may well be prepared to stay put if you are invested or you could be brave and buy its shares, which are currently priced at forward earnings and adjusted operating cash flow multiples of 15x and 5.5x, respectively. Either way, to not dare is to lose oneself — remember that? 

Boring

I have a problem with Royal Mail’s strategy of late — I did not digest its venture with Amazon — and I also have an issue with the limited room of manoeuvre that the mail and express sector offers. It doesn’t look good out there, as recently proved by the performance of UK Mail.

And, based on most metrics, you can’t even say that RMG looks dirt cheap at its current price of 450p!

So, I’d probably end up being bored to death checking out its stock price over the next decade, just trying to figure out how get out of the investment at anywhere between 450p and 550p. That’s a possible scenario over the medium to long term, in my view, unless some brave buyer placed a bid and the UK governments was willing to accept it. 

The post The Peril Of Holding Onto ARM Holdings Plc, Royal Mail plc & Antofagasta plc appeared first on The Motley Fool UK.

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You’d have recorded a 35% pre-tax gain if you had followed my advice to consider Globo (LSE: GBO) at 28p a share on 16 September — a “top pick“, as I described it.

The obvious question now is whether its shareholders will enjoy a true value story, or if rapidly rising returns are destined to fade away — let’s delve into its interim results, which were released today. 

Strength

Globo’s stock price has risen 8.2%, to 38p, so far today — and rightly so, in the wake of a solid trading update.

Recent news about its strategy also bodes well for long-term value. 

Strength is in the numbers, and although its growth rate for net income per share is lower than that of other key metrics and may point to a risky investment, you should pay attention to a few other details at this stage of maturity for this tech business. In fact, its most relevant financial metrics indicate that the group is on the right pattern of growth, driven by mobile. 

Its interim results for the years ended on 30 June showed: 

• Revenue up 56% to €72.4m (1H14: €46.5m);
• A 55% rise in EBITDA to €34.2 (1H14: €22m);
• Last twelve months EBITDA at €63.1m;
• Pre-tax profit up 37% to €22 (1H14: €16.1m);
• Net operating cash up €21m (1H14: €16.6m);
• Net cash increased to €47.4m (31 December 2014: €40.4m).

Based on the value of its current assets, its price-to-tangible book value, cash flow and earnings multiples, I don’t see why Globo could not double to 74p, or at least trade closer to its 52-week high of 64p over time.

While it’s true that its lowly earnings per share (EPS increased 14% to €0.049 versus €0.043 in 1H14) could get lower following the issuance of its upcoming high-yield bond, your focus over the next four to six quarters ought to be on its revenues and core cash flow profile, both of which in my view suggest that Globo deserves a valuation some 15p to 25p higher, based on fundamentals. 

Better Value Elsewhere? 

Elsewhere, Findel (LSE: FDL) rose over 15% in early trade today as it emerged that Sports Direct had acquired a stake of almost 19% in the retailer. Strategically, I am not sure this is a great deal for the buyer, although the valuation of Findel is attractive based on earnings and cash flow multiples. 

Findel also said that since completing the strategic review of its sports retailing business, Kitbag, it had “subsequently received an approach for the business from a third party and has agreed terms subject to contract,” adding “However, there can be no certainty that a deal will be reached.“

Its shares look fully priced to me right now. 

Today’s rise to 230p appears obvious, as investors bet on deeper ties between Sports Direct and Findel from now on, but aside from that single element, I really struggle to be bullish about a business that is not expected to grow at a particularly fast pace, whose underlying core margins could come under more pressure and whose balance sheet is not particularly strong, to put it mildly. 

The post Are Globo Plc And Findel plc Set To Double Or Halve In Value? appeared first on The Motley Fool UK.

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It’s easy for me to bet on a price tag of at least 4,000p a share, but there are a few reasons why you might do well to cash in today and invest proceeds elsewhere. 

Reaction 

SAB’s stock price has risen over 3% today as a bid from it rival could be imminent. SAB said on 16 September that “there can be no certainty that an offer will be made or as to the terms on which any offer might be made.”

“Shareholders are strongly advised to retain their shares and to take no action,” it added. Less than two weeks later, SAB now trades around the intra-day, 52-week high record that it hit on 16 September. 

Risks

A year ago, I argued that SAB was the most obvious takeover target in the beer industry, while AB InBev was the most obvious acquirer. Options are thin on the ground, so I reiterate that view — but I do not think a deal will happen at any price.

Equally important, we should consider the financing mix of any bid. 

SAB’s undisturbed share price is about 3,000p. The obvious risk is that the parties will not manage to agree a deal priced over at 4,000p, and then you’ll have to forego a very nice capital gain given that its current equity valuation is 3,700p — some 23% above the level that it recorded on 15 September. 

AB InBev became the largest brewer in the world, surpassing SAB, when InBev acquired Anheuser-Busch of the US for about $52bn in 2008. A premium of 27% was paid over the record high that AB had recorded in October 2002. 

Based on this element alone, a price tag of up to 4,600p seems about right, even though the net present value of synergies suggests a fair take-out price lower than 4,000p, according to my calculations.

The interests of the seller and those of the buyer must be aligned, of course, but AB InBev really needs emerging market exposure, and it may bid up to secure the assets that it needs. So, say that a bid north of 4,000p will surely emerge. 

Two Options

You have two options now: you forego any additional upside potential and take cash to get rid of your holdings right now. Alternatively, you have to be prepared to become a shareholder in AB InBev, betting on the chances of success for the combined entity, as well as taking some additional currency risk if you are a UK-based investor — the deal, which could value SAB north of $100bn, will likely include a significant equity portion (my best guess would be up to 40% of the total value of the acquisition).

A source in the City recently commented: “How could this possibly make it through antitrust? Will ABI just take the regulators on a wild bender?“

Consider that when AB InBev was created it flipped several assets to private equity and trade buyers to preserve its credit rating — some of those assets were later bought back by the seller. Now, if the deal goes through this round of negotiation, I would expect disposals in North America, but it is hard to predict how regulators worldwide will react to the biggest takeover of a British firm. Divestment risk is another factor we should take into account.

The post Are SABMiller PLC Shareholders About To Get 4,600p A Share From Anheuser Busch Inbev SA? appeared first on The Motley Fool UK.

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But which one should you choose right now, though? 

Risk

Centrica trades at 223p, which is very close to its 52-week low of 220p, and 28% below its one-year high of 309p. The average price target from brokers is 279p, according to Thomson Reuters. The spread between its stock price and consensus estimates started to widen at the end of July, when the stock traded around 270p. In a market dominated by uncertainty, Centrica is destined to remain under pressure, but based on its multiples, its assets base and its restructuring plan it does look very cheap indeed.

Safety

Since the end of July, National Grid has risen from 830p to almost 900p. That is a strong performance which did not come unexpected, and testifies to its defensive characteristics. The spread between its share price and the average price price target from brokers has now officially closed, but based on fundamentals and on forward multiples of about 14x earnings — which represents a premium of about 30% over Centrica — I wouldn’t be surprised if National Grid rose to 960p-1,000p by the end of the year, yielding a decent performance for its shareholders in 2015. Its shares have changed hands between 806.4p and 965p over the past 52 weeks. 

Expensive

Severn Trent remains one of the most expensive stocks in the utility sector, and not only because it trades above consensus estimates from brokers. It is hard to predict much upside from its current level of 2,159p, although its managers have done a great job in recent months. The water sector is generally expensive, and Severn Trent is about 60% more expensive than National Grid, based on earnings multiples. Frankly, I would not expect its 3.8% forward yield to get very close to National Grid’s 5%, but a level above 4% is likely on the back of a declining stock price rather than due to a lower payout ratio.

If I am right, downside could be in the region of 10% to 15%. One of the biggest threat to value is that a takeover might not materialise — although investors do have high hopes about a change of ownership — which is likely to put a lot of pressure on its valuation over time. Its stock price has ranged between 1,814p and and 2,227p over the last 52 weeks. 

Pricey

United Utilities is pricey, but you do have to pay a premium to hold water assets these days, and its valuation is 20% lower than that of Severn Trent. Its forward yield of 4.5% looks just about right for the risk that its stock carries, and the odds are short that buying UU at its current level of 918p would help you protect your savings over the medium term. Dividends are rising in spite of a tight free cash flow profile, but that is not unusual in the utility industry and should not be a big headache, at least until interest rates and the cost of debt do not rise significantly from their current levels. Its stock has changed hands between 784p and 1,045p since the end of September 2014, and if analysts are right it’ll likely rise close to its 52-week high. 

The post Are Centrica PLC, National Grid plc, Severn Trent Plc & United Utilities Group plc Cheap Enough? appeared first on The Motley Fool UK.

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Bearish or bullish? 

On 5 June 2015, Vodafone said that it was “in the early stages of discussions with Liberty Global regarding a possible exchange of selected assets between the two companies.“

Today’s statement gives Vodafone a different dimension — investors will now have to focus on fundamentals and nothing else. Frankly, I would not be prepared to buy its stock just yet, but I am ready to give management the benefit of the doubt, adding VOD to my wish list. 

That’s not been the case for a very long time. 

Evidence

I need more evidence, though, that growth in organic service revenue will get closer to 1.5% quarterly, and that projected trends derived from its latest quarterly results (+0.8% growth rate) will get better into 2017. In fact, at 2.3 times its forward net leverage is still problematic, in my view.

Furthermore, management must confirm that free cash flow will be about £1bn on an annual basis, and possibly as high as £1.5bn on the back of additional cost reductions. Based on these assumptions, Vodafone will likely be able to maintain its rich dividend policy, according to my calculations — its current stock price implies a forward yield of 5.3%.

That’s important because Vodafone has a significant debt pile and if it does not grow, both principal and interest repayments will become heavier and could certainly jeopardise its credit rating, which is just a notch above junk. Finally, it’d be great to hear more good news than bad news for its German business, which underperformed in recent times. 

210p

After months of speculations, its stock finally starts to trade without any M&A premium, which tends to inflate asset prices under extraordinary circumstances, including the possibility of a takeover, disposals or asset swaps. And that’s another reason why if I were to invest in the telecommunication sector today I would be tempted to buy VOD. 

Its shares are down almost 4% at the time of writing as the market did not digest the Liberty news, yet we are getting closer to a valuation that makes some sense now — the low end of my personal price target range remains 200p. By comparison, the average price target from brokers is about 250p, according to Thomson Reuters, but I’d expect a few downgrades as early as this week, particularly from the bulls who have pencilled a price target of 300p a share.

So, you can wait a day or two before deciding what to do.

The post Should You Buy Vodafone Group plc As It Ends Talks With Liberty Global? appeared first on The Motley Fool UK.

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Alessandro Pasetti has no position in any shares mentioned. 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.

Weakness

I have always been bearish on IGAS  and I haven’t made up my mind as yet, but I acknowledge that at 20p a share this shale gas developer has become particularly tempting. 

When it announced its final results on 26 June IGAS traded around 26p, but market volatility has meant value deterioration for a company whose latest financials aren’t particularly promising — cash is down, net debt is up, revenues are falling and losses are widening. Still, it has close relationships with such partners such as Total E&P UK, GDF Suez E&P UK and Ineos. So, the bulls could argue, if it gets in trouble it will likely be bailed out!

After all, it could easily attract a bid: its price-to-book value signals stress and its stock is dirt cheap, given that it trades close to the low end of its 52-week range (18.25p-92.75p). However, that’s not a good enough reason to buy.

Lack of trust

Another stock that reminds me a of stressed bond is Sainsbury’s. It trades at 226p, which is very close to the low end of its 52-week range of 221.1p–288.4p. 

The food retailer bears the hallmarks of an appealing investment based on trading multiples and net worth metrics. The problem, as you might know, is that trust has gone out of the window in the food retail sector and a huge amount of pressure is being felt on trading profits and core margins. Recent market share figures show that Sainsbury’s is holding up relatively well, at least compared to Tesco and Morrisons , and at 10x its forward earnings you’d be buying a stock that trades at a discount of about 40% against the FTSE 100‘s long-term average. 

The real problem is that nobody can firmly say if or when market share erosion will stop and whether the current business model of the top four food retailers in the UK is destined to live or die. Tesco is shrinking, while Morrisons recently offloaded its convenience stores, but no-frills discounters Aldi and Lidl continue to invest in organic growth, gaining share. I’d argue that whilst Sainsbury is certainly not safe yet, it’s a safer investment than Standard Chartered — but I’d rather buy the shares of the latter if I were to embrace equity risk. 

Exposed

Most trading metrics signal stress — and at 660p a share, Standard Chartered trades very close to the low end of its 52-week range (648.3p-1,174p). I think that its valuation already prices in the risk of a large cash call and another dividend cut, neither of which is strictly necessary, in my view, although certain analysts and pundits have argued in favour of a rights issues as big as $10bn to fix its balance sheet. 

Market volatility, weakness in commodity prices and all sorts of speculations are killing the investment case, and it couldn’t be otherwise in the light of Standard Chartered’s exposure. I hold faith, however, in its new management team, while a few other elements suggest that this could easily become a stock to hold as part of a diversified portfolio — namely, restructuring potential, possible appetite for some of its assets and stronger corporate governance rules.

It’s not going to be easy but it could be worth it at this price. 

The post At Their 52-Week Lows, Should I Snap Up Standard Chartered PLC, J Sainsbury plc & IGAS Energy PLC? appeared first on The Motley Fool UK.

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Alessandro Pasetti has no position in any shares mentioned. 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.