Are Solo Oil PLC, Cape PLC And SolGold plc In Danger Of Major Corrections?

Shares in industrial services provider Cape (LSE: CIU) were given a boost this week with news of a contract win with SABIC UK Petrochemicals. It will last for three years and shows that while the outlook for the energy sector remains highly uncertain, Cape appears to be performing relatively well as a business.

This point is further evidenced by last week’s results. Cape’s order intake increased by 13% in 2015 versus the prior year, with its order book standing 18% higher than at the same time last year. Furthermore, its operating cash flow rose by 29% and this allowed it to maintain dividends at 14p per share. This puts Cape on a dividend yield of 6%, which has huge appeal at a time when the FTSE 100 has a yield of around 4%.

Looking ahead, Cape is expected to post a fall in earnings of 18% this year and a further 1% next year. Despite this, its dividends remain well-covered at 1.7 times and with its shares trading on a forward price-to-earnings (P/E) ratio of 9.5, it seems to offer excellent value for money, too. Although the performance of the energy sector could deteriorate, Cape seems to be an appealing buy and while a correction can’t be ruled out if operating conditions worsen, the risk/reward ratio remains compelling for long term investors.

Rising fast

Among the top risers today are shares in SolGold (LSE: SOLG). It’s up by 17% at the time of writing despite there having been no significant news flow released. Of course, investor sentiment in SolGold has been strong since it released an update on 4 March, with Hole 16 at Cascabel continuing to intersect copper and gold mineralisation to a current depth of 1217m.

This is encouraging news for the company and with its shares having risen by 104% since the turn of the year, many investors may understandably wonder if a correction lies ahead. Although this can’t be ruled out, the gold price could have much further to run and this could have a positive impact on SolGold’s share price. After all, interest rate rises are likely to be slow and with there being a high degree of uncertainty among investors, gold miners and exploration plays could become increasingly popular over the medium term.

Going Solo

Meanwhile, shares in Solo Oil (LSE: SOLO) are up by 21% in the last three months as it continues to benefit from positive news flow regarding its stake in the Horse Hill development near Gatwick airport. Just this week, the stable dry oil flow rates from the three intervals in the Horse Hill-1 well when summed amounted to a higher-than-previously-reported 1688 barrels of oil per day (bopd). This is encouraging and although further results are due from tests, the commercial viability of the prospect has taken a step forward in recent weeks.

Clearly, Solo Oil is highly dependent upon news flow in the short run and if this disappoints then its shares could come under pressure. As such, it remains a relatively high-risk play, but for less risk-averse investors it has the potential to make considerable future gains – especially if the price of oil continues to tick upwards.

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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.