3 ‘Dogs’ About To Become ‘Darlings’? Interserve plc, Genel Energy PLC And Sirius Minerals PLC

Shares in support services company Interserve (LSE: IRV) have fallen heavily in recent weeks. In fact they are down by 30% since the turn of the year, despite the company releasing no significant news flow. The most recent update was the interim results in November, in which Interserve stated that it was on target to meet its full-year expectations.

With Interserve now trading on a price to earnings (P/E) ratio of just 5.6, it appears to be extremely cheap. Although the company is forecast to increase its bottom line by just 1% in 2016, there is clearly major scope for an upward re-rating over the medium to long term. And with the company yielding 7.1%, it remains a top notch income play – especially since dividends account for just 40% of profit.

Although volatility may be high, Interserve appears to be a strong buy right now. Despite its operating environment being mixed according to its interim results, it appears to have a highly appealing risk/reward ratio.

Also falling heavily since the turn of the year have been shares in Genel Energy (LSE: GENL). Clearly, the weak oil price has been a major factor in this and according to the company’s most recent update, it missed 2015 revenue guidance. Furthermore, it expects revenue and production to fall significantly in 2016 as a result of lower oil prices and this is a key reason why the company’s shares are down by 29% in the last month.

Since its update, Genel has released positive news flow regarding payments for oil exports from the Kurdistan Regional Government (KRG). It has also announced that it will commence drilling in Iraq/Kurdistan in order to ramp-up production. While these are pieces of positive news, Genel is still apparently owed more than $400m for previously exported oil and this figure has the potential to increase if the geopolitical outlook for the region worsens. For this reason, it appears as though there are better options available within the resources sector.

Meanwhile, shares in Sirius Minerals (LSE: SXX) have also disappointed in recent weeks, falling by 37% in the last three months. A key reason for this is a delay to its definitive feasibility study for the planned potash mine in York. Although this was a disappointment, the reality that there are likely to be further challenges on a project of this magnitude. However, this could be a sign of things to come if there are further delays – in other words Sirius Minerals’ share price could be highly volatile moving forward.

The company potentially has a very bright long-term future, but with the rest of the resources sector now offering extremely low valuations as well as high degrees of profitability in some cases, the relative appeal of Sirius Minerals is now questionable. For most investors, buying other resources companies could be a better move – especially since uncertainty regarding financing for large-scale projects within the sector remains high.

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Peter Stephens owns shares of Interserve. 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.