Are Glencore PLC, Ithaca Energy plc And Faroe Petroleum plc Set To Fly?

These three stocks have all been under the spotlight in the last 18 months with the latest commodity sell-off. However, all three companies mentioned below have good bull cases and I expect their share prices to recover substantially in the next six months. Here’s why…


Glencore (LSE: GLEN) has had much of the spotlight in the last few weeks. The share price is well up from all-time lows but I believe it’s still seriously undervalued at these prices. Having fallen over 6% on Monday and 2% on Tuesday, there is a good opportunity for an entry point that will offer good returns in the future. Glencore is selling off assets to pay its debt off and shore up the balance sheet. The debt stands at around $30bn, so it’s no wonder that it seems like every day another mine is on the chopping block. After the fire-sale is over and the balance sheet is shored up, there are large returns to be made in what will be a streamlined company with much less debt. Obviously the company is subject to the volatile commodity prices, but even so, at 118p the shares look very undervalued and should rise higher on any good news. 

Ithaca Energy

Ithaca Energy (LSE: IAE) have also been under pressure due to their weak balance sheet. However, last week the company received a US$66m strategic investment from Delek Group at a premium to the share price. This investment is going to be used for satellite acquisitions and to strengthen the balance sheet. Shares flew up last week on the news as investors bought into the stock, and I believe this will continue. The key is the Stella field: this is set to come on stream next year after long delays, and this will boost earnings and move Ithaca’s valuation sky-high, in my opinion. The delays in Stella are part of the reason the share price is so low, and when production starts it should change the company for the good.

Faroe Petroleum

Faroe Petroleum (LSE: FPM) is another stock that is heavily undervalued at these levels. The company has one of the strongest balance sheets in the North Sea and is very overlooked by investors. The company has a market cap of £200m and a cash balance of £107m (up over £20m from Dec -14) with 11,000 boepd of production making a profit at $50 oil. In the next six months, Faroe is also undergoing a huge exploration campaign and any success will make the shares soar. It’s targeting reservoirs near their Pil discovery that was made last year as well as larger exploration targets in the Barents Sea. This exiting drilling campaign is underpinned by low cost production and a strong balance sheet, and this is what makes the shares so attractive. 

The three stocks mentioned here all offer an attractive risk-reward profile to investors that can hold through volatile times. Should there be any improvement in the commodities sector then this will have a good effect on the shares too, but I believe they will all rise even if prices stay at rock bottom. 

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Jack Dingwall has a long position in Faroe Petroleum. 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.