In the last four months, the Tullow Oil (LSE: TLW) share price has fallen by around 10%. While disappointing for investors in the company, it could present a buying opportunity. The stock now appears to offer an even wider margin of safety, which could help it to outperform the FTSE 100 over the coming years.
Of course, it’s not the only stock that could be worth buying for the long term. Reporting on Friday was a fast-growing business which seems to offer an exceptionally low valuation.
The stock in question is specialist building products supplier SIG (LSE: SHI). It released first-half results which suggest that its transformation plans are moving along as expected. It was able to strengthen its balance sheet while also refocusing its portfolio. It’s managed to make improvements to its business with regard to leverage, return on capital employed, while also reducing costs at the same time.
Unfortunately, trading conditions in the UK have remained challenging. This was at least partly due to poor weather conditions. But general economic uncertainty has also weighed on the company’s performance. As a result, underlying revenue moved just 1% higher, boosted by its performance across Europe.
Looking ahead, SIG appears to offer growth potential at a reasonable price. The company is expected to post a rise in earnings of 16% in the next financial year. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 0.7, which suggests that it could offer a wide margin of safety. As such, and while it’s still in a process of major change, its stock price performance could be ahead of the FTSE 100 in the long run.
The Tullow Oil share price could also outperform the FTSE 100. While it has the potential to be volatile in the near term, its strategy looks set to pay off. Increasing production could boost cash flow, as well as profitability. This may help the business to command a higher valuation at a time when the oil and gas industry is experiencing a recovery following an increase in the price of oil.
With Tullow Oil’s shares having a price-to-earnings (P/E) ratio of around 12, they seem to offer good value for money. The company is expected to post a rise in earnings of 11% in the next financial year, and this could allow it to generate improving share price performance following its recent decline.
Of course, the oil price is highly unpredictable and could move sharply upwards or downwards in the medium term. Therefore, with the company having what appears to be a low valuation, it seems as though investors have priced in potential uncertainty. This could allow long-term investors to take advantage of a wide margin of safety on offer. And with debt levels falling, and activity levels across the sector set to increase, now could be the right time to buy it for the long run.
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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.