Shares in Afren (LSE: AFR) have risen by over 7% today on the back of improved investor sentiment for oil and resources stocks. Of course, investors in Afren have endured a challenging 2014, with allegations of unauthorised payments to former directors combining with a lower oil price so that shares in the company have fallen by a whopping 71% since the turn of the year.
However, even if the oil price falls further (as is expected), Afren’s current valuation seems to offer a considerable margin of safety. For example, shares in the company trade on a price to earnings (P/E) ratio of just 4.5 using next year’s lower forecast earnings figure. As a result, even a stabilisation in the oil price over the medium term could lift sentiment in Afren.
And, with an investigation into the alleged unauthorised payments concluding that there was no material loss to the company, Afren could see its share price post a much more impressive performance moving forward.
Also showing strength today are shares in Hurricane Energy (LSE: HUR), with the oil company seeing its share price rise by 10% at the time of writing. Despite this, shares in Hurricane are still down by an incredible 63% in the last three months, with no significant news flow being released today, or in the last few weeks.
However, with Hurricane’s exploration plans receiving a boost in early November, sentiment could start to improve moving forward. Indeed, with the extension of licenses at two of its prospects — Typhoon and Tempest — being granted by the Department of Energy and Climate Change (DECC), Hurricane could see its share price stabilise over the medium term.
Clearly, it remains a high risk play for whom success largely depends upon the price of oil. But, for less risk averse, longer term investors, it could be one to add to the watch list.
Having slumped by 37% yesterday, shares in Petroceltic (LSE: PCI) are up 8% today. Of course, it could be little more than a ‘dead cat bounce’ following yesterday’s news that Dragon Oil will not be making a £490 million takeover bid for the company. The main reason for this change of heart is apparently a lower oil price that means the value of oil assets is perhaps not as high as even just a few months ago.
Looking ahead, Petroceltic appears to be making encouraging progress with its flagship gas condensate project in Algeria, which is expected to commence production in 2018. Furthermore, with crude oil prices expected to be much higher by then, the current volatility in oil markets is unlikely to hit projections for the new project.
Of course, sentiment could remain weak in the short run while the market overcomes the disappointment from the deal with Dragon Oil falling through. However, the long term could prove to be relatively bright for Petroceltic – especially if its flagship project remains on-track.
While Afren, Hurricane Energy and Petroceltic are all up by relatively large amounts today, here at The Motley Fool we think that taking a longer term approach to investing can deliver the most promising results.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Afren. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.