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2 stocks that seem absurdly cheap right now

The mining sector may have enjoyed a more prosperous period in recent months. However, many of its constituents continue to offer low valuations and the potential for improving share price performance.

Certainly, the risks from declining commodity prices remain. The global economy’s performance could come under pressure and lead to a general slowdown. But with wide margins of safety, these two mining companies appear to be worth a closer look right now.

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Improving performance

Reporting on Tuesday was zinc/gold miner Griffin Mining (LSE: GFM). The China-focused operator delivered a 91% increase in revenue, with its operating profit of $64m 319% higher than in the previous year. It delivered record production in 2017, while cash generated from operations of $77.4m enabled all bank loans to be repaid. It also allowed the company to invest $13.3m in further development of the Caijiaying mine, as well as in exploration and equipment purchases.

Looking ahead, Griffin Mining is expected to deliver a modest 3% rise in earnings in the current financial year. While there are mining stocks with higher forecast growth rates, the company’s price-to-earnings (P/E) ratio of around 9 suggests that it could offer good value for money. That’s especially the case since demand for gold miners could increase if global inflation expectations continue to rise.

Of course, the company is relatively small and seems to lack the diversity of some of its sector peers. Therefore it may mean a relatively risky investment opportunity. But with strong progress being made in its operational and financial performance, its low valuation suggests that it could deliver high rewards in the long run.

Turnaround potential

Also offering upside potential within the sector is gold miner Acacia (LSE: ACA). The company has experienced a hugely challenging period, with an export ban in Tanzania hurting its financial performance. For example, in the last financial year the company’s bottom line moved into the red despite a relatively strong year for the gold price.

Looking ahead, there could be further uncertainty for the business. The trading conditions it faces may remain tough and while it seems to have a solid strategy, it could experience significant volatility over the medium term.

However, investors may have factored in potential challenges for the business. Acacia trades on a forward P/E ratio of around 8. And with its bottom line due to return to the black in the current year, investor sentiment could improve – especially since earnings growth of 10% is forecast for the 2019 financial year.

With the gold price having the potential to rise due to a mix of uncertainty in the prospects for the global economy and the recent volatility in riskier assets such as shares, now could be the perfect time to buy gold miners. Acacia may be at the riskier end of the investment spectrum, but its potential rewards could be high.

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Peter Stephens has no position in any of the 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.