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Why Centrica PLC, Antofagasta plc And Royal Dutch Shell Plc All Offer Terrible Value

Today I am looking at three stocks that should be trading at much, much cheaper prices.

All gassed out

Thanks to the persistent threat of regulatory action at its British Gas downstream operations, shares in energy giant Centrica (LSE: CNA) have been tanking for the best part of two years now. And although the stock has bounced from the six-year troughs printed back in March, I believe a move lower is an inevitability given the massive uncertainties facing the entire business.

Firstly, the Competition and Market Authority’s investigation into industry overcharging could still result in drastic, profit-crushing measures, from price caps through to a potential break-up of the ‘Big Six’. These measures no doubt went some way to encouraging Centrica to cut average gas prices by a further 5% last month. And the London firm is also facing the heat across its upstream operations thanks to a diving oil price and rising operating costs in the North Sea.

The City currently expects Centrica to record a 7% earnings slip in 2015, a result that would mark a third straight year without growth. Despite this the firm still trades on a P/E multiple of 14.9 times, hardly eye-watering but far too high given the risks surrounding its ability to generate profits further out. And while another dividend slip to 12p per share is anticipated, I reckon investors should resists the 4.5% yield as creeping debt levels could see the payout fall much further from last year.

Copper not yet bottomed

Copper miner Antofagasta (LSE: ANTO) has enjoyed no respite in recent times as prices of the bellwether metal have steadily collapsed. Indeed, the business has slumped 30% since the start of May alone, including a 2.8% drop in Tuesday trading alone as the copper price has sunk once again — prices are currently hovering around $5,000 per tonne.

Like Antofagasta, the red metal is now dealing at levels not seen since the early part of 2009. And I expect further weakness to transpire as the Chinese economy drags and suppliers the world over ramp up production. And thanks to technical problems at its Antucoya asset, the Chilean miner cannot compensate for falling prices by digging more material out of the ground — the business downgraded its 2015 production guidance 4% to 665,000 tonnes just last month.

The number crunchers have predicted another earnings slide at Antofagasta for this year, this time by a chunky 28% and leaving the company dealing on a quite-ridiculous P/E ratio of 27.2 times. And the copper play is hardly a compelling dividend pick to make up for this shortfall, with another expected dividend reduction — to 14.5 US cents per share — yielding a paltry 1.6%.

Drowning in oil

Like Antofagasta, shares in Shell (LSE: RDSB) have slid lower in oft-bumpy trading thanks to a tanking oil price, and the London firm has shed close to a third of its value during the past twelve months. The Brent price’s recovery has well and truly stalled thanks to worrying supply data from the US shale sector, and a dive back around $48.50 per barrel recently leaves it in territory not seen since January.

This evaporation in investor confidence coincides with OPEC’s ongoing belligerence to curtail pumping, not to mention slowing activity on the Chinese shop floor. And Shell’s fears over the future of the oil price was laid bare last month when it shaved another 6,500 from its workforce.

The City predicts that Shell will endure a 32% earnings slide in 2015, leaving the firm dealing on a P/E ratio of 13.5 times. But like the other stocks mentioned above, a reading closer to the bargain benchmark of 10 times would be a fairer reflection of the risks in Shell’s end markets, in my opinion. And given the oil giant’s scramble to conserve cash in the current climate, I also reckon a projected dividend of 188 US cents per share — matching last year’s payment and yielding 6.7% — is a long chalk to say the least.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.