Are Genel Energy plc, Centrica plc and Rockhopper Exploration plc 3 must-have resources stocks?

The performance of shares in Centrica (LSE: CNA) since the turn of the year has been disappointing, with them falling by around 8%. A key reason for this is the fundraising announcement made by the company recently, with it apparently hurting investor sentiment in the stock. However, with a stronger balance sheet and improved financial position, Centrica could prove to be an excellent turnaround play.

Certainly, Centrica is set to move away from its oil and gas business interests. It will instead focus on the supply of domestic energy and could therefore become a more stable and robust investment. This would be good news for income-seeking investors who favour a more stable dividend outlook and with Centrica yielding 6.1%, it remains a very appealing dividend stock for the long term.

Clearly, Centrica is undergoing a period of major change at the moment and this brings considerable risk. But with it expected to deliver vast cost savings as well as an improved profit outlook, its price-to-earnings (P/E) ratio of 13.3 indicates that it offers excellent value for money.

Short-term risks

Also falling since the turn of the year have been shares in Genel Energy (LSE: GENL). They’re down by 26% year-to-date and this is largely because of weakness in the oil and gas sector. However, as the price of oil has picked up in recent weeks, shares in Genel have risen as per the rest of the industry, with Genel’s share price up by 5% in the last month alone.

While further gains to Genel’s share price can’t be ruled out if the price of oil rises above $50 per barrel, investors may be able to obtain a superior risk/reward opportunity elsewhere in the sector.

That’s because as well as the risk of losses from a fall in the price of oil, Genel appears to offer less stability than a number of its peers. It faces significant geopolitical risk within the Northern Iraq region, while it will be forced to make major impairments this year due to a reduction in reserves estimates. As such, and while its long-term future may be highly profitable, Genel doesn’t appear to rank as a must-have resources stock at the moment.


Meanwhile, shares in Rockhopper (LSE: RKH) have surged by 40% since the turn of the year. It has been significantly boosted by an independent audit of reserves at its offshore Falkland Islands operations, with there apparently being much more oil there than was previously thought.

This is excellent news for the company and means that its long-term future is now a little brighter than it previously was. And with it having merged with Falkland Oil & Gas, Rockhopper now appears to be more financially sound and in ownership of a more appealing asset base than was previously the case.

While Rockhopper is a relatively small and therefore higher-risk company, it has significant potential to deliver further capital gains. As such, for less-risk averse investors it could prove to be a sound buy.

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Peter Stephens owns shares of Centrica. 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.