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Are Glencore PLC & Premier Farnell plc Set To Rise Quicker Than Xcite Energy Limited, Premier Oil PLC & KAZ Minerals PLC?

Overstretched

KAZ Minerals (LSE: KAZ) closed at 150p on Friday. It dropped to 139p on Monday, hitting 104p on Tuesday. It currently trades at 108p, but its high level of indebtedness could seriously jeopardise the value of your investment even at this price. Most financial metrics indicate that its current valuation — which stands at a 52-week low, and 60% below a one-year high of 280p — may not fully take into account a deteriorating cash position. Its net debt rose to $1.5bn at the end of June from $962m six months earlier, which implies a net leverage of 17x. 

Looking For Fair Value

Xcite Energy (LSE: XEL) closed at 23p on Friday. It dropped to about 20p on Tuesday, but has bounced back to 21.5p since. It currently trades close to a 52-week low of 19.75p, and some 65% below a one-year high of 63p — however, I am not too bearish based on fundamentals. This fossil fuel explorer is a different investment than KAZ, but one that is similarly exposed to the vagaries of the global economy. With oil prices at these levels for longer, it will find it difficult to deliver on its promises. It recently argued for a net present value “of the reserves for the Bentley field of about “$1.9bn, $2.3bn and $2.6bn on a 1P, 2P and 3P basis, respectively”. As the company acknowledges, that does not represent its fair market value.

A Risky Macro Play

Premier Oil (LSE: PMO) closed at 78p on Friday. It plunged to 64p on Tuesday, and currently trades at 66p, which is about 80% lower than a 52-week high of 343.5p. It said yesterday that production remained “ahead of full year guidance of 55 kboepd, before any contribution from Solan,” which indicates that if you are really bullish on the global economy you might not run the risk of losing a fortune investing in its shares at these levels. Still, its balance sheet carries too much debt based on its cash flow generation, so I’d be careful before snapping up its stock. It’s easy to argue that its brand new covenants remain tight, while capital requirements are significant. 

(If volatility subsides, KAZ, XEL and PMO will not necessarily rise as quickly as other companies whose fundamentals and business pipelines look more promising right now. Read on…)

Recovery 

The rise and fall in the valuation of Glencore (LSE: GLEN) has been spectacular in recent days and weeks. The shares traded around 130p on Friday, but they have plunged to a lowly 99p on Tuesday — hitting another record low. At its current valuation of 108p, its stock is dirt cheap based on most metrics, so a calculated bet would make sense. The risk is that its restructuring plan won’t work according to plans (some assumptions are very bullish, in my view) — hence, you are advised to hold GLEN only as part of a properly diversified portfolio.

The same applies to Premier Farnell (LSE: PFL), which issued a profit warning a week ago — but there are caveats. Since 17 September its stock has plunged from 133p to 100p: does its share price currently take into consideration the recovery potential of this electronics manufacturer? Citigroup today cut its price target from 140p to 90p, which is not terrible news. In fact, you’d be buying into a restructuring story for less than 10 times its forward earnings. PFL could be a nice alternative to any investment in the commodity sector: leverage is manageable, and the group is paying attention to working capital management — yet its price-to-book value signals risk…

So, you might give it a pass for now and decide to invest instead in a small-cap included in our FREE value report -- the shares of this value play are testing their 52-week highs, but are set rise further, in my view!

Indeed this fast-growing small-cap story is truly appealing; in our FREE report you'll find out why this firm's prospects have been recently transformed. A rising market share is likely, I believe, while a drastic clean-up of its balance sheet also offers reassurance for the future. 

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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.