Is Now The Perfect Time To Buy Iofina plc And Gulf Keystone Petroleum Limited?

Should you add these 2 small-caps to your portfolio? Iofina plc (LON: IOF) and Gulf Keystone Petroleum Limited (LON: GKP)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Whenever a company’s share price falls heavily, it can create a significant opportunity for new investors to buy in and benefit from sizeable long term gains. Of course, it can also be the start of a downward spiral, with the old adage that it is difficult to catch a falling knife being highly relevant.

With this in mind, do these two small-caps fall into the former or the latter bracket? Are Iofina (LSE: IOF) and Gulf Keystone Petroleum (LSE: GKP) (NASDAQOTH: GFKSY.US) worth buying, or should they be  avoided at the present time?

Iofina

Iodine producer, Iofina, has seen its share price plummet by 7% today, after the company released a statement saying that it intends to delay publication of its final results until 25 May. The reason given for the delay is that the company needs more time to finalise the results, which appears to have spooked investors and could cause Iofina’s share price to come under further pressure between now and the release of the results.

Of course, Iofina’s most recent update showed that the company is making encouraging progress. For example, it said in mid-April that production had almost trebled in the first quarter of 2015 (versus the same quarter of the previous year), with March being a record month. Furthermore, it remained confident that the closure of one of its plants will not alter its production targets for the first half of the year.

However, Iofina also revealed in its most recent update that it took part in a hearing on February 19 with regards to an objection to its Montana water permit, with a ruling expected by June 6. This means that the end of May/start of June period looks set to be a crucial one for the business and, while it remains on-track to become a lower quartile cost iodine producer, it may be prudent to wait for the results and the outcome of the hearing before buying a slice of Iofina.

Gulf Keystone Petroleum

The major problem for investors in Gulf Keystone Petroleum is political risk, with this being a major factor in the company’s share price decline of 59% in the last year. And, while a low oil price is a challenge for the whole sector — and it looks set to remain at a relatively low ebb — realistically there is a decent chance that, over the medium to long term, the price of oil will increase beyond $60 per barrel.

However, the unrest in Iraq/Kurdistan may not be resolved in the short to medium term and, with Gulf Keystone having a balance sheet that is relatively highly leveraged, cash flow could become a problem in time. Certainly, the company is doing all of the right things and has a slick operation in Iraq/Kurdistan that is producing and selling oil — the problem, though, is receiving payment for it.

As such, and while Gulf Keystone could have a very bright future, now does not appear to be the perfect time to buy it. Moreover, with valuations in the oil sector being relatively low, there appear to be better opportunities elsewhere for capital gains over the medium to 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 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »