Trading has proved to be what can best be described as choppy for the freshly-monikered BHP Group (LSE: BHP) in the second half of 2018.
It’s been a testing time for many of the world’s largest minerals and energy suppliers as rising trade tensions between the US and China have curbed appetite for such stocks. It’s hoped that the G20 meeting in Argentina over the weekend will see peace break out between Presidents Trump and Xi Jinping in the escalating tariff wars, but the chilly exchanges between the two parties so far suggest that no such détente is on the horizon.
It’s no surprise that I believe BHP and its peers face more rocky trading in 2019, or perhaps even a sharp slide should either the Americans or Chinese up the ante. But tense geopolitical relations are not the only problem facing this FTSE 100 stock in the New Year.
The sharp decline in oil and iron ore values in recent weeks presents a major headache for BHP, which sources more than half of total earnings from these two commodities. Prices have been diving as signs of surging production in both markets have become more apparent, as well as growing fears over a slowing global economy next year and beyond.
Brokers have been cutting their earnings estimates for BHP with regards to the 12 months to June 2019. They are now predicting a meagre 2% profits advance but clearly, there’s plenty of reason to expect this reading to be hacked down in the months ahead too.
I don’t care about its low, low forward P/E ratio of 12.9 times, nor its corresponding 7% dividend yield. I’m not touching BHP with a bargepole.
Sales still sinking
Marks & Spencer Group (LSE: MKS) is another big yielder from the Footsie at great risk of plunging in 2019.
Competition amongst the country’s mid-tier fashion retailers and grocery sellers is becoming more and more intense and it’s keeping trading under the cosh at M&S. Latest financials from the Footsie firm showed like-for-like sales for its clothing and homeware lines down 1.1% in the six months to September. It was even harder going for its food division, with corresponding sales here dropping 2.9% from the same 2017 period.
And things are only likely to get tougher for the retail sector in 2019 as Britain’s painful withdrawal from the European Union continues. Data from research house GfK released yesterday showed consumer confidence down to -13 in November, a sharp deterioration from October and the lowest reading for 11 months.
As at BHP, City analysts have been cutting back their earnings estimates in recent weeks and a 12% bottom-line decline is now expected for Marks & Spencer for the year to March 2019.
With profits in serious danger of tanking beyond the present period too, I’m not attracted by its cheap forward P/E ratio of 12 times nor its bulky 6.1% dividend yield. M&S is a share where the risks far outweigh the potential rewards and in my opinion it should be fiercely avoided.
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Royston Wild 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.