While shares in Rio Tinto (LSE: RIO) have risen by 30% in the last three months, they are still down by 27% over the past year. This shows just how disappointing the company’s performance has been, with the iron ore sector in particular being hit hard by a slowdown in China. And with Rio Tinto having limited diversity in terms of the commodities it produces, many investors may be wondering if it is best to avoid the mining major.

While a lack of diversity is a weakness of Rio Tinto, it has a number of other qualities which make it a strong buy. For example, it has an excellent balance sheet which affords it a degree of resilience which few competitors can match, while its capital expenditure remains robust and highly dependable. Furthermore, Rio Tinto has become increasingly efficient in recent years so as to maintain and develop its competitive advantage over sector peers at a time when iron ore prices have been at decade-long lows.

With Rio Tinto trading on a price to earnings growth (PEG) ratio of just 1, it appears to offer a highly appealing risk/reward ratio. As such, it seems to be an excellent long term buy.

Growing and diversifying

Also disappointing of late have been shares in Costa Coffee and Premier Inn owner Whitbread (LSE: WTB). They have fallen by 12% this year because of investor concern about the state of the UK consumer goods sector, as well as the potential impact of the new living wage. With Whitbread expected to pass much of this additional cost on to consumers via higher prices, there is a worry among some investors that the company’s top line performance could suffer.

With Whitbread today announcing that it has taken a 49% stake in health foods company, Pure, it seems to be focused on growing and diversifying its business. And with expansion outside of the UK on the horizon, its long term growth potential seems to be very impressive. As such, Whitbread’s PEG ratio of 1.4 indicates that it is a stock to buy, rather than avoid.

A degree of optimism

Meanwhile, shares in Flowgroup (LSE: FLOW) have fallen by over 10% today even though it has not released any major news flow today. Of course, investor sentiment has been weak since the energy services company released its 2015 results last week, with it reporting a wider loss due to the investment it is making in order to grow the business. For example, it is investing heavily in staffing numbers and infrastructure in order to develop a stronger framework for future growth.

Despite this, Flowgroup’s revenue increased last year and this should provide its investors with a degree of optimism surrounding its long term future. However, with Flowgroup set to remain in the red in each of the next two financial years, there seem to be better options for investment available elsewhere.

The post Are Rio Tinto plc, Whitbread plc and Flowgroup plc 3 stocks to avoid? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Rio Tinto. The Motley Fool UK has recommended 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.

Soaring higher

Defence play Ultra Electronics (LSE: ULE) soothed investor nerves in Friday trading after announcing a solid uptick in client activity.

While trading has been in line with management expectations during the quarter, the London business advised that “order intake for quarter one has been strong.” The order book has swelled to £833.5m as of the start of April, Ultra Electronics advised, up from £753.8m at the beginning of 2016.

This is great news considering that £100m worth of orders at Ultra Electronics had slipped into this year and beyond — broker Edison notes that “the first quarter improvement would tend to suggest that at least some of these have been recovered alongside significant elements of new intake.”

Indeed, the Greenford firm has also inked lucrative contracts with the Royal Navy and fellow defence giant Raytheon during the past couple of weeks alone.

The City expects earnings at Ultra Electronics to tick 5% higher in 2016, and a further 6% rise is predicted for next year. I believe that subsequent P/E ratings of 13.7 times and 12.9 times represent a decent level to latch onto the firm as market conditions seem to be improving.

Failing to ignite

Boiler builder Flowgroup (LSE: FLOW) has not fared as well in end-of-week trading, however, the stock recently dealing 12% lower from Thursday’s close. The business announced today that revenues galloped 21% higher during 2015, to £40.4m. But this could not prevent operating losses widening to £17.1m from £10m in 2014.

Flowgroup said that the adverse result reflected “increased investment in staffing levels and infrastructure in preparation for further growth across the business.” However, the engineer was also hampered by a delayed launch for its Flow boiler following a European Court of Justice ruling on energy-saving products, a move that could see VAT on the device increased to 20% from 5% from 2017.

Flowgroup completed first commercial installations of the product in April at the 5% rate, and believes that boiler sales and installations should continue to benefit from a reduced tax rate.

But of course this is not a certainty, and Flowgroup could see uptake of its cutting-edge tech slump should VAT charges soar. Such a scenario could see losses extended beyond 2017, as City forecasts currently suggest.

Driller dips

Shares in fossil fuel play Eland Oil & Gas (LSE: ELA) have continued to trade below recent five-month peaks in Friday’s session.

The company has announced plans to raise $15m through a book-build placing to accelerate the development of its assets in Nigeria. As well as funding the re-entry, completion and production of its Gbetiokun-1 well, Eland will also use the funds to build a supplementary export route for production. The remainder will be used for working capital purposes, Eland advised.

Positive testing results at the field have helped propel Eland’s share price in recent weeks, and the business hopes to produce 7,800 barrels of oil per day when production commences. Maiden oil is pencilled in for the second half of 2016.

The City expects Eland to bounce back into the black this year, and record earnings of 13 US cents per share. This projection leaves the firm dealing on a P/E rating of 3.1 times.

For some, this ultra-low reading may make the business an irresistible value pick. But I believe the uncertainty related to oil drilling — not to mention the wider supply imbalance hanging over the oil price — still makes Eland a risk too far at the present time.

The post Should you buy Ultra Electronics Holdings plc, Flowgroup plc & Eland Oil & Gas plc today? 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.

What’s Going On?

The UK group, which develops and sells alternative energy products, announced today “a substantial reduction in the expected number of boiler installations in 2015“.

“The European Court of Justice ruled on 4 June that the UK’s reduced 5% rate of VAT on energy-saving products is in breach of EU laws,” it said, adding that it is accelerating “its cost reduction programme for the Flow boiler to offset these costs, with VAT now expected to be applied on these products at the usual 20% rate“.

That’s a terrible blow for shareholders, whose holdings — after a terrific +170% performance in 2014 — had already been hammered in 2015 before today’s news. 

Blame The Government 

“While the UK Government has yet to clarify the ongoing position, (…) the company has decided to take the prudent step to focus the Flow Products business on its cost reduction programme, (…) ensuring that customers remain unaffected by any potential increase in VAT and maintaining the long term viability of the ‘Boiler that pays for itself’ model.“

However, a substantial reduction in boiler installations will determine a plunge in revenues, with the inevitable results that financial targets won’t be met. 

What’s Next? 

The reduced VAT rate “was a UK government initiative to encourage energy efficiency and to meet energy reduction targets under the UK’s Green Deal” and applied to micro-generation products such as the Flow boiler, Flowgroup said, but it’s unclear whether the government remains committed to providing incentives to encourage the adoption of similar products. 

So far the government “has said that it will study the judgement carefully and consider the next steps,” yet the problem is that Flowgroup now has to forgo its ambitious plans, which until yesterday suggested it would be “net cash flow generative by Q4 2015 and profitable by Q1 2016“.

Tony Stiff, chief executive, said that the group now has “to wait to see how the government will interpret this and how they will react,” also noting that the long-term expectation of a “successful roll out of our technology remains unchanged,” but it is clear “that launching during a time when consumers might have to pay over £500 more for the Flow boiler and see installation costs rise by 15% would be inconsistent with our initial roll out plans.“

Financials 

Before today, Flowgroup had already lost 44% of value in 2015, and recent results reinforced the view that too much risk surrounds its business model. Its equity is now worth £77m. 

Its operating loss in 2014 stood at £10m (2013: £7.7m), “reflecting infrastructure and resource costs to support business growth and commercialisation,” the group said on 4 June.  Meanwhile, its cash position, as at 31 December 2014, was £8.4m (31 December 2013: £17.4m).

It’s likely that Flowgroup will need more equity to keep going and that’s one of the reasons why investor are selling off today. Another reason is that at 15.4p a share, where it currently trades, Flowgroup still looks expensive based on its net worth. 

The post As Flowgroup PLC Plummets, Should You Buy Or Sell It Today? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?