Still unable to mount a fightback at the tills, the Bradford chain plans to reduce the cost of almost 160 products as part of its ongoing Price Crunch strategy. The latest round of reductions will see prices of “essential” meats tumble by 12%, a key battleground for Morrisons given that animal products are among the most expensive items in shoppers’ trolleys.

Although such moves are required to slow the momentum of German low-price rivals Aldi and Lidl, a continued programme of price cuts to entice shoppers isn’t sustainable for Morrisons’ bottom line — the business has reduced the cost of 4,435 products so far in 2016.

Besides, there’s little evidence that Morrisons’ manoeuvres are drawing food shoppers back through its doors. Latest data from Kantar Worldpanel showed takings at the firm down 1.8% during the three months to 14 August, nudging its market share 20 basis points lower to 10.4%.

Morrisons needs to show it has more in its locker than mere price cutting to put to bed its earnings troubles, particularly as a weak pound is likely to exert extra pressure on margins in the coming months as  the costs of food imports increase.

Morrisons currently deals on a forward P/E rating of 19.8 times, sailing above the generally-regarded watermark of 10 times indicative of high-risk stocks. I reckon this represents spectacularly-poor value given the supermarket’s poor turnaround prospects.

Dicey digger

A patchy revenues outlook also makes BHP Billiton (LSE: BLT) a gamble too far for sensible investors, in my opinion.

The stock price has jumped by a third since the turn of the year, a backcloth of recovering iron ore and oil values bolstering market appetite for the raw materials mammoth. But I reckon BHP Billiton’s ascent is built on rather shaky foundations.

UBS commented this week that “we do not believe the iron ore market is fundamentally tight as port stocks are high, supply is lifting (new additions [and] idled high-cost capacity returning), and steel output is only up modestly.”

Indeed, the broker expects iron ore to retreat back to $50 per tonne in the fourth quarter, away from recent levels around $60, with Chinese steelmaking activity predicted to moderate in the next three to six months.

BHP Billiton sources more than a third of total earnings from this one market. But this isn’t the company’s only problem — a steady build in the US rig count threatens to put crude values back in a tailspin; copper capacity continues to build; and decarbonisation initiatives the world over are smashing coal demand.

Given the prospect of fresh pressure on commodities values, I reckon BHP Billiton is in danger of a significant retracement, particularly given its currently-huge forward P/E ratio of 27.4 times.

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Stuck in a hole

Needless to say, mining giant Anglo American’s (LSE: AAL) fortunes are tied very closely to the economic health of China.

The Asian powerhouse is by far the world’s largest iron ore consumer, and ships in more than five times that of Japan, the second-largest purchaser. And worryingly for Anglo American, other struggling economies like Russia, Turkey and Brazil are also major consumers of the steelmaking ingredient.

But fears over future iron ore sales aren’t Anglo American’s only concern — indeed, Chinese coal demand slipped 3.7% last year as Beijing’s lawmakers are striving to reduce carbon emissions. Iron ore and coal account for around half of Anglo American’s underlying earnings.

And poor demand indicators across Anglo American’s other markets suggest that earnings aren’t expected to bump higher any time soon.

Indeed, the City expects the bottom line to sink a further 34% in 2016, the fifth successive slide if realised. Given that minerals demand from key emerging markets could be set to worsen further, I reckon a consequent P/E rating of 21.3 times represents very poor value for money.

Sales slump

Dragging revenues growth in Asia has long been a millstone around the neck of Standard Chartered (LSE: STAN).

The banking giant saw first-quarter income slumped by 24% during January-March, to $3.3bn, and the odds of a resounding bounceback don’t appear favourable at present.

Indeed, Standard Chartered noted that “trading conditions in the first quarter of 2016 remained similar to the final quarter of 2015, including depressed commodity prices, volatility in Chinese markets, weak emerging market sentiment and concerns around interest rate and other policy actions.”

The company is undergoing massive restructuring to resurrect its performance in these key regions and reduce costs. But Standard Chartered has a long and probably hazardous road ahead to return to its former glories.

The City may expect the bank to swing back into the black in 2016 with earnings of 22 US cents per share. But intensifying economic cooling in Asia — allied with a gargantuan P/E rating of 42.6 times — make Standard Chartered an unattractive stock pick, in my opinion.

Brazilian bothers

While banking rival Santander (LSE: BNC) may not be as reliant on emerging regions as Standard Chartered — indeed, the UK represents the Spanish firm’s single largest market — I reckon worsening economic conditions in Brazil still make the bank a risk too far at present.

The Latin American heavyweight is responsible for around a third of Santander’s profits, but economic growth there is getting bashed up by a toxic mixture of rampant inflation, weak commodity prices, and more recently the impact of a growing political malaise.

Brazil’s economy dipped 3.8% in 2015, and a further heavy contraction is predicted for this year and potentially beyond, undermining a key growth lever for Santander.

The bank is predicted to endure a 4% earnings slip in 2016, resulting in a P/E rating of 9.5 times. While Santander’s reading is low on paper, I reckon investors can find much more secure banking picks elsewhere at these prices.

The post 3 emerging market stocks to avoid! Anglo American plc, Standard Chartered plc and Banco Santander SA appeared first on The Twelfth Magpie.

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Axa’s chopping back

‘Big Tobacco’ found itself in the headlines on Monday after Axa (EPA: CS) decided to pull the plug on the sector.

The insurance giant plans to sell €1.7bn worth of shares and bonds, bringing to an end Axa’s long-running association with the cigarette industry.

Incoming CEO Thomas Buberl commented that “it makes no sense for us to continue our investments within the tobacco industry,” noting that the economic drawbacks outweigh the benefits as the huge costs associated with tobacco-related diseases push up health insurance claims.

It’s certainly been a turbulent week for major players like Imperial Brands (LSE: IMB), the introduction of plain packaging in the UK also having been given the green light in recent days.

But I believe the tobacco industry still remains a good destination for those seeking solid returns. Indeed, Imperial’s ‘Growth Brands’ like Winston and JPS carry terrific brand power that keep sales growing ahead of the market. And the company is investing vast sums in these labels to maintain their popularity with smokers across the globe.

The City expects Imperial Brands to deliver earnings growth of 12% and 9% in the years to September 2016 and 2017, respectively, resulting in decent P/E multiples of 15.4 times and 14.4 times.

And dividend yields of 4.3% for this year and 4.7% for 2017 underline Imperial Brands’ excellent value for money.

Soaring higher

Budget flyer Ryanair (LSE: RYA) also made the headlines on Monday after releasing terrific trading numbers.

Despite the impact of recent terrorism on the continent, the Irish airline saw revenues leap 16% in the 12 months to March 2017, to €6.54bn, with customer numbers leaping 18% during the period to 106.4m. Consequently profit after tax leapt 43% to €1.24bn.

And like Imperial Brands, I reckon Ryanair provides plenty of bang for your buck.

A predicted 29% earnings advance in fiscal 2017 results in a mega-low P/E rating of 11.6 times. And an anticipated 17% advance in 2018 pushes the multiple to just 9.9 times. I reckon this represents unmissable value given Ryanair’s strong position in a fast-growing market.

Coal shoulder

The recent volatility washing over Coal of Africa (LSE: CZA) continues on Monday, the firm surging back to the 4p per share landmark before handing back gains.

The digger exploded at the start of May after reaching an agreement with Rio Tinto and Kwezi Mining over a deferred payment for its Chapudi South African coal assets. The parties began discussions in March over accusations that Coal of Africa had breached terms relating to the 2012 purchase.

Coal of Africa has also bounced on the back of fresh acquisition news, the business successfully extending the offer period for Universal Coal twice since April. The latter’s shareholders now have until 24 June to accept the proposal.

I believe that the volatility seen at Coal of Africa — a common phenomenon with small-cap commodities stocks — makes the company a risk too far for savvy investors. And of course the structural decline in coal demand also raises huge questions over Coal of Africa’s appeal as a wise investment for long-term stock pickers, in my opinion.

The post Should you buy Imperial Brands plc, Ryanair Holdings plc and Coal of Africa Limited today? appeared first on The Twelfth Magpie.

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A cast-iron ‘sell’

The amount of froth thrown up by rampant investor buying makes near-term share price directions in the commodities segment nigh-on impossible to predict.

Diversified giant Anglo American (LSE: AAL) has seen its share price surge 223% during the past three months, for example, including an additional 8% increase between last Monday and Friday.

Large swathes of short-covering — combined with slumping US dollar values — set metals and energy prices soaring skywards back in January, dragging the wider commodities sector with it.

But make no mistake: the long-term picture for these companies remains extremely dangerous, leaving the likes of Anglo American in line for a severe retracement.

Sure, iron ore prices — a material from which Anglo American sources around a third of total earnings — may continue to march higher, the steelmaking ingredient soaring to fresh multi-month highs around $70 per tonne. Values have gained fresh momentum following positive Chinese steel output data released in recent days.

Still, concerns remain as to whether the Asian powerhouse can keep this momentum going, a necessity given that the likes of BHP Billiton, Rio Tinto and Vale continue to extend capacity.

A slippery stock pick

Of course iron ore is not the only market swimming in excess material. Indeed, Anglo American’s other markets like coal, copper and diamonds are also battling against poor demand indicators.

And the supply/demand imbalance whacking the oil sector leaves Premier Oil (LSE: PMO) in danger of a meaty reversal, too. The fossil fuel producer gained 33% during Monday-Friday, thanks in no small part to a surge of buying activity in end-of-week business.

Investors remain hung up on a potential supply freeze from OPEC et al — speculation that is yet to bear fruit despite months of negotiation. Meanwhile, a steady build in global inventories continues to cast a cloud over Brent prices in the medium-term and beyond.

Recent share prices advances leave Anglo American dealing on a huge P/E rating of 26.4 times for 2015, a rating that does not fairly reflect the firm’s high risk profile, in my opinion. And the City expects Premier Oil to keep churning out losses until 2017 at the earliest. I reckon these factors make both stocks highly-unattractive investment destinations at the present time.

Banking issues

Financial goliath Royal Bank of Scotland (LSE: RBS) also received a boot higher between last Monday and Friday, the share advancing 7% during the period.

But I reckon the huge problems coming down the line leave little in the tank for RBS to keep charging. Massive divestment activity has significantly hampered the firm’s revenues outlook, and signs of economic moderation in the UK could heap further pressure on the firm’s growth prospects, particularly if the country topples out of the European Union in June.

And of course RBS is also battling the spectre of galloping PPI charges ahead of a possible 2018 claims deadline. Indeed, institution stashed away an extra £500m in last year’s final quarter to cover the cost of the mis-selling scandal.

The banking giant is currently dealing on a P/E rating of 13.3 times for 2015. And while a reasonable ‘paper’ valuation, I believe this value is far too expensive given that RBS’ major peers like Lloyds and Barclays are in much better shape and carry far cheaper valuations.

The post Can last week’s winners Anglo American plc, Premier Oil plc & Royal Bank Of Scotland Group plc keep climbing? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Diversified digger Rio Tinto (LSE: RIO) has gained more than 4% from Tuesday’s close, to reclaim the 2,000p marker. And many resources-related shares have unsurprisingly been caught in the updraft, too — industrial belt-maker Fenner (LSE: FENR) was recently up 5% on the day.

China bites back?

Official data released overnight showed Chinese exports surge 11.5% year-on-year in US dollar terms during March, the biggest leap for more than 12 months.

But stock pickers should not be breaking out the bunting just yet, in my opinion. Whilst the increase in exports is encouraging, I believe a sustained recovery in economic data is needed before market commentators call a bottom to the downturn — Chinese exports slumped by a quarter in February, after all.

Besides, China’s imports declined yet again last month, this time by a chunky 7.6%. Sure, Rio Tinto and its industry rivals would have no doubt welcomed copper purchases hitting a record 570,000 purchases in March. Still, this is likely the result of tactical stockpiling rather than a sign of robust underlying demand.

And of course the mining and energy sectors need a sustained improvement in Chinese commodities demand to be complemented by huge cuts to total global production in order to slash chronic supply imbalances across most markets.

Battered belt-maker

Consequently, Fenner and other support providers to the diggers and the drillers are also not out of the woods just yet. The belt-maker advised last month that its “end markets continue to be challenging, most notably oil and gas where the North American rig count has reduced further.”

And the company faces further pressure as US coal mining activity is also on the back foot. Sure, Chinese coal demand may have galloped 15.6% higher in March. But news today that North America’s Peabody Energy has filed for bankruptcy underlines the massive upheaval facing the bulk commodities sector, and consequently the demand outlook for Fenner’s industrial parts.

Driller dives

Oil and gas play HydroDec Group (LSE: HYR) has failed to be swept up in the midweek buying spree washing over the commodities sector, the stock last changing hands 11% lower from Tuesday’s close.

HydroDec has suffered a delayed drop as investors digested yesterday’s news that losses had widened to $31.1m in 2015 from $8.9m the previous year. As well as battling falling revenues, the business was whacked by an $11.1m impairment on the value of its assets.

With cash heading out of the business at an alarming rate, HydroDec also announced plans “to extend its £2m secured second working capital facility with Andrew Black, a non-executive director … by a further £2.25m to £4.25m.”

Like Rio Tinto and Fenner, HydroDec is expected to endure further earnings misery in the medium term as commodity prices drag. As a result I believe the oil play — like many of its small cap peers — could find itself in extreme peril should commodity prices fail to snap resoundingly higher.

The post Why Savvy Investors Are Selling Rio Tinto plc, Hydrodec Group plc & Fenner plc appeared first on The Twelfth Magpie.

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A look behind the scenes

However, the volatility can mask what’s actually going on behind the scenes, and although most UK shares are off of their highs right now, there are some that are stuck in a downtrend. Sometimes this can be caused by sector-based worries such as a housing bubble getting ready to pop – I think there are general worries in this area currently.

At the same time there are fears that have become reality. We’ve seen plenty of evidence of this following the collapse of the oil and gas price. This has been widely reported in the media, however there have been fewer reports of the negative sentiment in the wider commodity sector. It only takes a quick flick to the databank section in Shares Magazine to see that gold is outperforming and most non-precious metals are headed in the other direction.

It’s hardly surprising then when you turn to the chart below you see that the shares of BHP Billiton (LSE: BLT) and Hargreaves Services (LSE: HSP) have collapsed over the last 12 months due to their exposure to these under-pressure commodities. Meanwhile shares in Bovis Homes (LSE: BVS) and Galliford Try (LSE: GFRD) have simply declined due to the general worries in the sector and market volatility rather than any concrete evidence of a downturn.

Dividend risers vs dividend cutters

If the pressure of falling earnings on the company share price wasn’t enough, investors should be aware that a sensible board will also need to keep their eye on the dividend payout.

Sadly, it’s often the case that investors can be suckered into shares, which to the untrained eye can look like they have a market-beating yield.

We’ve seen evidence of this recently with both BHP Billiton and Hargreaves Services. Before the interim results announcements in February, both shares looked set to yield in excess of 10%. However, both management teams announced that they were cutting the dividend: by a whopping 74% at BHP and 84% at Hargreaves.

Conversely, as earnings increase, in addition to the usual accompanying share price rise, management is also afforded the opportunity of increasing the dividend payout.

We’ve seen this of late with both Bovis and Galliford Try. Both management teams were confident enough to raise the dividend (by 14% at Bovis and 18% for Galliford) and this places the shares on a forward yield of 5% and 6%, respectively, according to data from Stockopedia.

And despite the uncertainty in the housing sector at the moment, most companies that I see presenting from my trading desk are indicating that the current environment is sustainable given the low interest rates and structural shortage of housing generally. This gives me confidence that the dividends are also sustainable and should rise further in the future along with the company share price.

The post Why I Prefer Dividend Growers Galliford Try plc & Bovis Homes Group plc To Dividend Cutters BHP Billiton plc & Hargreaves Services plc appeared first on The Twelfth Magpie.

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Tesco

Quite why investors continue to pile into Tesco (LSE TSCO) is quite beyond me, I’m afraid. Shares in the battered supermarket giant are once again within a whisker of hitting lows not visited since 2003, but despite this chronic weakness I reckon the stock remains supremely overvalued.

Tesco is expected to record a fourth successive earnings slip in the 12 months to February 2016, this time by a chunky 38%, leaving the retailer changing hands on a quite unbelievable P/E multiple of 35.1 times. I would consider a reading much, much closer to the bargain benchmark of 10 times — territory fit for firms with high risk profiles and poor growth outlooks — to be a more accurate reflection of Tesco’s travails.

I would not rule out a huge share price re-rating to bring Tesco closer to these levels, what with Morrisons and Sainsbury’s chalking up further underlying sales slips of 2.6% and 1.1% respectively in their latest quarters. Once again a combination of crippling grocery price deflation and the sturdy progress of discounters Lidl and Aldi continues to whack the established supermarkets, and I expect things to get much worse as competition across the industry intensifies.

Vedanta Resources

Like Tesco, I believe energy and metals giant Vedanta Resources (LSE: VED) should continue to endure prolonged top-line pain as demand across commodity markets wanes. Copper prices — a segment from which the business sources almost four-tenths of total revenues — sunk to fresh six-year lows around $4,800 per tonne on Friday, and further dips are widely predicted as new supply outpaces off-take.

But it is not only in the copper market where Vedanta faces a headache, with key segments like zinc, aluminium and oil also toiling around multi-year nadirs. The business reported last week that revenues slipped 12% during April-September, to $5.7bn, pushing EBITDA 39% lower to $1.3bn. Despite extensive cost-cutting, these measures are clearly no match in an environment of tanking commodity prices.

The City expects Vedanta to extend losses of 14.2 US cents per share in the 12 months to March 2015, and losses of 15 cents are pencilled in for the current period alone. As Chinese economic cooling continues to accelerate, and the likes of Vedanta remain committed to upping production in chronically-oversupplied markets, I reckon earnings will languish for some time to come.

Fenner

An environment of weak commodity prices is certainly playing havoc with industrial conveyor-belt builder Fenner (LSE: FENR), too. The company announced this week that revenues dipped almost 9% during the year to August 2015, falling to £666.7m, which pushed it into a pre-tax loss of £5.3m, compared with a profit of £29.2m in the previous period.

If this wasn’t bad enough, Fenner (which builds hardware for the coal industry) advised that “in light of the recent further deterioration in the US coal industry … the Group is likely to achieve an outcome for the current financial year which is moderately below its previous expectations.“

The City has pencilled in a 26% earnings decline for the 12 months to August 2016, and slowing Chinese economic growth, combined with ‘decarbonisation’ initiatives across the globe, is likely to lead to profits pain further down the line, too. I believe that Fenner’s P/E rating of 13 times remains far too high given the murky outlook for key markets.

The post 3 Shocking Shares For Friday The 13th: Tesco PLC, Vedanta Resources plc And Fenner plc appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Atlantic Coal

Energy play Atlantic Coal (LSE: ATC) has seen its share price explode in Thursday business, and the firm was dealing 10.7% higher on the day at one point. The stock was boosted by news that revenues galloped 26% higher during January-September, rising to $17.6m, putting the company in great shape to blow away last year’s total turnover of $18.4m.

 The news comes just a week after Atlantic Coal announced that production of clean coal and “run of mine” coal advanced 28% and 50% in the third quarter, while total sales leapt 65% in the period.

 With the Pennsylvanian miner boasting vast inventories, and hiking prices ahead of the key winter season, the company appears in great shape at the moment. But with the US moving steadily away from coal in favour of other power sources, I believe the long-term outlook for Atlantic Coal remains shaky.

Hays

Recruitment specialists Hays (LSE: HAS) failed to ignite the market following its own update on Thursday, however, and the company was last changing hands 7.2% lower from the midweek close. The business advised that like-for-like net fees advanced 8% during July-September, slowing from 9% in the prior three months. In particular, investors were spooked by a chunky drop in UK and Irish fees growth.

On top of this, the effect of a weak euro and Australian dollar meant that reported net fees rose just 3% in the period, and the company advised of further currency troubles ahead. But troubles in Hays’ domestic market is the main area of concern for analysts, and with the City set to downgrade its earnings estimates, a P/E multiple of 17.7 times for the year to June 2016 suddenly looks a tad heady in my opinion.

Dunelm Group

Shares in out-of-town homewares retailer Dunelm Group (LSE: DNLM) received a mild shot in the arm in Thursday trade following its latest financial update, and the business was last 2.3% higher from Wednesday’s close. The company commented that like-for-like store sales galloped 4.4% in the 13 weeks to October 3, to £171.8m, while home delivery orders surged 25.9% to £11.5m. In total, group underlying sales rose 5.5% in the period.

Dunelm’s results reflect the huge investment made in improving its expanding the number of outlets it operates and refurbishing its stores, not to mention the launch of its new website during the summer. And, promisingly, the retailer expects much more to come from its online service, advising that “as the new site becomes fully bedded down, we expect to see substantial further growth through this channel.”

The City expects Dunelm to enjoy a 5% earnings advance in the year to June 2016, creating a respectable P/E multiple of 18.1 times. And I expect the bottom line to continue expanding as consumer spending power in the UK ticks steadily improves.

The post Should You Buy Atlantic Coal Plc, Hays plc And Dunelm Group plc Following Thursday’s News? appeared first on The Twelfth Magpie.

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Trading outlook uncertain

Around 60% of Hargreaves’ operating profits come from coal trading — buying coal from (mainly) foreign producers, and selling it to UK customers such as coal-fired power stations.

This hasn’t been a good business to be in during the second half of this year, because falling gas prices have meant that gas-fired power generation has increased, at the expense of coal, which carries higher environmental costs.

Hargreaves expects volumes to recover during the winter, but it’s clear that if gas prices remain low, volumes may not recover next year.

Mining production halt?

The other problem highlighted in this morning’s update was that Hargreaves’ Scottish coal mines could become loss-making next year, following this year’s collapse in the price of coal.

Hargreaves is protected from losses this year thanks to fixed-price contracts, but these all expire in the current financial year.

As a result, the firm has effectively said that it will cut or even halt production unless a specific contract is available to prevent the risk of losses, with the goal of maintaining the mines at break-even next year.

Monckton closure = +£8m

Hargreaves announced today that it will close its Monckton coke works, having failed to find a buyer. This will result in cash costs of £4.8m and a further £13.6m of non-cash impairments.

However, the gradual sale of Monckton’s coke stocks will generate a lot of cash, and Hargreaves expects a cash inflow of £8m from the closure of Monckton during the current financial year.

Hargreaves is in decline

Coal mining and coal-fired power generation will almost certainly continue to decline in the UK.

Rather than trying to fight a losing battle, Hargreaves is simply cutting investment wherever possible and freeing up cash by allowing its business to shrink.

The results are clear: net debt fell from £80m to £69m last year, while the dividend rose by 24%. A further 22% dividend increase is expected for the current year, in addition to a buyback of up to 10% of the company’s shares.

Hargreaves shares currently look cheap, with a prospective yield of 5.2%, and a P/E of 5.7.

However, they’re cheap for a reason: it’s almost impossible for Hargreaves to deliver long-term growth, so the shares are a sell for me.

The post Hargreaves Services plc Slides On Profit Warning As Coal Prices Slump appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.