One turnaround growth stock I’d buy alongside Hurricane Energy plc

This company could deliver a strong recovery alongside Hurricane Energy plc (LON: HUR).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The outlook for the resources industry has improved dramatically in the last couple of years. After a period of declining commodity prices and a high degree of uncertainty, the prospects for rising profitability in the industry seem high. As such, buying resources stocks now could be a shrewd move, with their valuations being relatively low in many cases.

With that in mind, oil and gas exploration company Hurricane Energy (LSE: HUR) could offer strong turnaround potential. However, it’s not the only resources company offering the potential to generate improving share price performance in future.

Improving outlook

Releasing a production update on Friday was diversified resources stock Vedanta (LSE: VED). Its third quarter performance was relatively upbeat, with its earnings before interest, tax, depreciation and amortisation (EBITDA) rising by 21% versus the same period of the prior year. This was driven by rising volumes and higher commodity prices, although this was offset to some degree by higher input commodity cost inflation.

Furthermore, the company’s ramp-up plans across its asset base are on track. In the third quarter, its Zinc India production increased by 7%, aluminium production was up 40% and Copper Zambia production increased by 12%. There was also progress made in its oil and gas division, with contracts being awarded for growth prospects announced in November 2017. Meanwhile, its iron ore and power business units continue to make encouraging progress.

With Vedanta’s share price having fallen 23% in the last year, it now trades on a relatively low valuation given its financial outlook. The company is expected to report a rise in earnings of 62% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.1, which suggests that it could offer strong turnaround potential.

Encouraging progress

Also falling in the last year have been shares in Hurricane Energy. It is down around 26% during the time period and it has suffered to some extent from uncertainty regarding its future prospects. Its strategy has been called into question in recent months, while changes in management have had a destabilising effect on investor sentiment.

However, the company continues to make good progress with its Lancaster Early Production System (EPS), with it targeting first production in 2019. This could mean that the stock is able to generate significantly improved financial performance over the next couple of years. This may mean that investors begin to place a higher valuation on the business over the medium term.

Furthermore, Hurricane Energy could see its valuation rise due to the higher oil price. Oil is now trading at its highest level since 2014 and with demand and supply forecast to be close to equilibrium this year, the current price level appears to be sustainable. As such, the company could be a strong turnaround option and while risky, its potential rewards could be high.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »