Are These 3 Resources Stocks ‘Screaming Buys’? Gulf Keystone Petroleum Limited, Antofagasta plc & Fresnillo Plc

Could these 3 resources plays stimulate your portfolio returns? Gulf Keystone Petroleum Limited (LON: GKP), Antofagasta plc (LON: ANTO) and Fresnillo Plc (LON: FRES)

| 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.

Since the turn of the year, the share prices of Gulf Keystone (LSE: GKP), Antofagasta (LSE: ANTO) and Fresnillo (LSE: FRES) have fallen by 51%, 23% and 18% respectively. Clearly, that’s hugely disappointing and shows that the resources sector has been almost devoid of any capital gains during the period. And, worryingly for investors, commodity prices are showing little sign of turning the tables on their falls of recent months, with oil dipping below $50 per barrel and other commodities also coming under further pressure.

In addition to a falling oil price, Gulf Keystone has had to endure a significant cash flow problem. With its operations being as close as twenty miles from the front line in Iraq, it is perhaps surprising that it has remained operational throughout the present conflict in the country. However, the market appears to be hugely concerned regarding its medium to long term outlook, since Gulf Keystone is struggling to keep its head above water as a result of cash flow problems, with the Kurdistan Regional Government (KRG) still apparently behind on payouts to local oil producers.

Whether this situation will ease up seems to be impossible to determine. However, even if it does, Gulf Keystone continues to offer vast risk and only limited rewards. For example, the conflict in Iraq is showing little sign of abating and, with the oil price likely to come under further pressure, margins may be squeezed and investor sentiment could worsen. Meanwhile, a price to book ratio of 1.46 does not appear to take into account such potential problems.

That’s especially apparent when looking at the likes of Antofagasta and Fresnillo. They operate within the mining rather than oil sector, but are also struggling to cope with depressed commodity prices and weak investor sentiment. Despite this, both companies have remained profitable in recent year and, while their bottom lines have fallen considerably, their share price falls mean that, unlike Gulf Keystone, they appear to offer excellent value for money.

For example, Antofagasta is expected to increase its bottom line by 49% next year and, despite this, trades on a price to earnings (P/E) ratio of just 22.3. This equates to a price to earnings growth (PEG) ratio of just 0.3 and indicates that a wide margin of safety is on offer and that Antofagasta could deliver excellent share price gains in future. Similarly, Fresnillo is due to see earnings per share soar from around 5p last year to around 25p in 2016 and, with it also trading on a PEG ratio of 0.3, it appears to be well worth buying at the present time.

Certainly, there is scope for further weakness in the share prices of Antofagasta and Fresnillo in the short run. However, for longer term investors who can live with a relatively high degree of volatility, now seems to be a great time to buy a slice of both companies.

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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »