Penny shares, by their very nature, look temptingly priced. It’s easy to imagine a stock multiplying in value over a short period of time if it can be snapped up for mere pocket change. Even so, I think it pays to be extra cautious when hunting for winners. Here are three companies that, based on traditional investing metrics, look good value to me. But are they really?

Renold 

I can currently buy shares in industrial chain supplier Renold (LSE: RNO) for just nine times earnings. That already looks a potential bargain given that the company’s customers are nicely diversified by sector and geography. However, this minnow also has a PEG (price/earnings-to-growth) ratio of 0.5. As a rule of thumb, anything at or below 1.0 tends to imply value based on that firm’s prospects. 

Recent results go some way to supporting this. Earlier this month, the company announced that it was continuing to see a recovery in revenues and orders following the pandemic. The latter rose 61.3% to almost £80m over the four months to the end of July. As such, RNO now predicts it will beat market expectations for full-year adjusted operating profit. 

This is not to say that an investment in this penny share is risk-free. The “much-lengthened supply chains” and “considerable raw material and transport cost inflation” mentioned in the last update could get worse before they get better. Even so, I reckon Renold is a cautious buy for my portfolio today.

Severfield

Severfield (LSE: SFR) produces about 300,000 tonnes of fabricated steelwork a year from its five UK sites and factory in India. This is eventually used in the construction of landmark buildings, stadiums, warehouses, hospitals and universities. London’s Shard and Wimbledon’s No.1 Court are examples. 

Right now, I can buy the shares for 11 times earnings. That compares favourably to valuations both within its industry and the market as a whole. The company also has a PEG ratio of just under 1.0. 

Then again, it’s worth me bearing in mind that demand for Severfield’s steel will clearly be linked to the overall health of the UK economy. It’s also worth noting that this has been a penny share for over nine years now. As such, I doubt this stock will fly anytime soon.

Still, it does offer a secure and decent dividend yield (3.7%). So, as a way of balancing out my more racy growth plays, Severfield appeals to me. 

Gem Diamonds

Diamond explorer and producer Gem Diamonds (LSE: GEMD) is a final penny share that, using traditional valuation measures, looks dirt cheap. It has a price-to-earnings (P/E) ratio of less than six for the current year. Other things I like are the net cash position and 3.8% dividend yield.

Then again, this low valuation isn’t a complete surprise. After all, any company in the mining sector has the potential to be highly volatile in price due to the cost and difficulty of extracting whatever metal or mineral it’s focused on. This is potentially compounded by where in the world drilling is taking place.

To be fair, GEMD digs in Botswana and Lesotho, which are considered to be generally safe. However, other risks include the growing popularity of synthetic diamonds among younger buyers.

So, while I like some of what I see here, I’m content to leave Gem Diamonds to those with stronger stomachs.

The post These 3 penny shares look dirt cheap. Should I buy? appeared first on The Twelfth Magpie.

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Paul Summers 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.

Gold plus cash

Centamin, whose assets are in Egypt, is a stock I think is well worth considering. I reckon it’s good to have some exposure to gold in a diversified portfolio, as it can provide a bit of stability in times of trouble.

ETFS Physical Gold, which simply tracks the price of gold, less a small annual management charge, is one stock I’d be happy to buy today. However, Centamin offers something you don’t get from the metal itself. Those valuable cash dividends I mentioned earlier. I think this reward more than offsets the business risk and a share price that tends to be more volatile than the gold price, due to miners being largely a geared play on the metal.

In addition to its appealing dividend yield, I reckon Centamin’s price-to-earnings (P/E) ratio and price-to-earnings growth (PEG) ratio, based on earnings projections for 2019, are attractive at a current share price of around 100p. With 25% earnings growth forecast for the year, the P/E is an undemanding 12.7 and the PEG is 0.5, which is well to the ‘good value’ side of the PEG ‘fair value’ marker of one. As such, I’d be happy to buy this stock today.

Valuable diamonds

Gem Diamonds is a smaller company. Its market capitalisation of £153m at a share price of 110p (up around 2% on the back of this morning’s results) compares with Centamin’s £1.2bn. Nevertheless, might it be wise to split an investment between the two stocks?

Gem has recovered 13 diamonds greater than 100 carats from its Letšeng mine in Lesotho (southern Africa) so far this year, which already surpasses its previous highest number of these recoveries in a single calendar year. Ongoing technical improvements at the mine have improved recoveries and there should be more to come with the company set to commission a plant for the early detection of large diamonds and diamond damage reduction in Q2 2019.

In view of this, I’m not sure why City analysts are forecasting a decline in earnings in 2019. Perhaps 2018 is viewed as a one-off bumper year. However, even on the reduced earnings forecast, Gem’s P/E is a very cheap-looking 7.7. Furthermore, management has been focused on improving cash flows and with the board having a policy “to pay a dividend to shareholders when the financial position of the company permits,” analysts are forecasting a payout in 2019, albeit at a token level at this stage.

Due to the prospect of improving shareholder returns, including in the tangible form of cash dividends, and the benefit not only of reducing company-specific risk, but also diversifying geopolitical risk, I would lean towards splitting my investment. And at their current valuations, both stocks look very buyable to me.

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G A Chester 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.

Improving performance

Reporting on Wednesday was precious metals mining company Gem Diamonds (LSE: GEMD). Its half-year performance was relatively strong, with revenue rising by 81% to $167.7m, while underlying EBITDA (earnings before interest, tax, depreciation and amortisation) increased from $13m last year to $68.4m in the first half of the current year.

The company has experienced relatively strong operating conditions. Its business transformation is also moving along as planned, and this is expected to contribute to a rise in earnings of 280% in the current financial year. Although its medium-term prospects may be volatile, Gem Diamonds’ price-to-earnings (P/E) ratio of 6 suggests that it offers good value for money and may therefore be able to deliver capital growth.

The company has scope to further improve its productivity and efficiency over the next few years. Together with the potential for strong global economic growth, this could lead to an impressive financial performance over the medium term.

Income opportunity

The income investing potential of Rio Tinto (LSE: RIO) continues to be relatively impressive. The company has enjoyed robust demand for iron ore in recent years, with stable demand from China being a major part of its improved financial performance. With the world economy performing well and Chinese demand for steel continuing to be high, this trend may continue over the next few years.

Rio Tinto’s dividend yield of 5.9% indicates that as well as a high income return, the stock may be undervalued. It continues to have a competitive advantage versus peers when it comes to costs, and this could provide it with greater resilience should operating conditions change.

With the company’s dividend being covered around 1.7 times by profit, it seems to have a sustainable income outlook even if iron ore prices fall. And with a P/E ratio of around 11, it appears to offer a wide margin of safety.

Improving business

The performance of Anglo American (LSE: AAL) could also be relatively impressive over the long run. The company has been able to restructure in recent years, with asset disposals helping it to concentrate on core operations. Alongside productivity and efficiency improvements, this has helped the company to deliver stronger financial performance in the last couple of years.

Clearly, there are risks ahead for Anglo American and its sector peers. The stronger US dollar could cause weaker demand for a range of commodities, and this could hurt investor sentiment. But with the stock having a P/E ratio of around 10, it seems to offer excellent value for money when its diversity and improved financial standing is considered.

While not the most stable stock in the index, the company appears to offer a sound risk/reward ratio. As such, it could be worth buying now for the long term.

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Peter Stephens owns shares of Rio Tinto. 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.

With that in mind, here are two shares which appear to be grossly undervalued given their financial forecasts.

Sound strategy

Reporting on Wednesday was Gem Diamonds (LSE: GEMD). The diamond miner reported that 2017 was a difficult year, with its profitability coming under pressure. However, it began to see the impact of changes made to its business model in the second half of the year. For example, there was a significant improvement in the recovery of large diamonds. And with prices continuing to be buoyant, the prospects for the business appear to be bright.

In addition, Gem Diamonds is aiming to become more efficient. The company is targeting the delivery of $100m in cost savings by the end of 2021. It will also seek to deliver $30m in cost savings a year after that date.

But looking ahead, the company is forecast to experience a volatile financial performance over the next two years. Clearly, its profitability is highly dependent on the underlying diamond market. However, with a price-to-earnings (P/E) ratio of around 7, the stock appears to be undervalued at present. While this suggests it’s unpopular among investors and may be a volatile investment, it could also prove to be a highly profitable purchase in the long run.

Upbeat outlook

Also offering the potential to generate high returns in the long term is gold miner Centamin (LSE: CEY). The company is expected to report a 38% rise in its current-year bottom line, with solid production levels and a firm gold price helping to boost its outlook.

Despite such a high rate of growth, the stock trades on a price-to-earnings growth (PEG) ratio of just 0.4. This suggests it could generate further capital growth in the long run — even after rising by 160% in the last five years.

Certainly, the outlook for the gold price remains uncertain in the near term. Investors may become more bullish about the prospects for the global economy and this may lead to reduced demand for safer assets. However, the prospect of a period of higher inflation over the coming years remains likely and this could ultimately lead to more favourable trading conditions for Centamin and its peers.

As such, now could be the perfect time to buy. Alongside its capital growth potential, it may offer some defensive characteristics in case the recent volatility in share prices continue. This means that it could be a worthwhile addition to a mix of investor portfolios for the long run.

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Peter Stephens owns shares in Centamin. 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.

I believe the price represents excellent value for money. And there’s a similar-sized company in a different industry that’s also trading far too cheaply, in my view.

World-class mine

Gem Diamonds owns 70% of the Letšeng mine in Lesotho, an enclaved country, completely surrounded by South Africa. The Lesotho government owns the other 30%. Letšeng produces large, top colour, exceptional white diamonds and is the highest dollar per carat kimberlite diamond mine in the world.

The company also owns 100% of a mine in Botswana. This mine, which produces commercial-quality diamonds of lower value and size, has been on care and maintenance for the past year, largely due to depressed prices in the market for diamonds of this class.

Sparkling growth prospects

Gem Diamonds reported a strong final quarter to 2017. It sold 31,476 carats during the period, up 21% from Q3, and achieved an average price 19% higher at $2,217 per carat. It ended the year with net cash of $1.4m compared with net debt of $11.8m at the end of Q3.

The momentum has continued into this year, with the company already having recovered five diamonds of greater than 100 carats, compared with eight in the whole of 2017. Chief executive Clifford Elphick said: “This is largely attributable to the ongoing technical improvements made at the Letšeng mine.”

Gem Diamonds is well run with a strong balance sheet and trades at less than 10 times forecast 2018 earnings of $0.14 a share (9.86p at current exchange rates). And with analysts having pencilled in growth of up to 50% for 2019, I rate the stock a ‘buy’.

Thriving business

Pawnbroking is one of the oldest businesses in the world. Its long history is testament to both its profitability and an enduring demand for its services. It’s the main business of H&T Group (LSE: HAT), which was founded in 1897 and floated on AIM in 2006. Now the UK’s leading pawnbroker, H&T has a market capitalisation of £131m at a share price of 350p.

This is another company that enjoyed a strong final quarter to 2017. So much so that chief executive John Nichols told us in an update last month: “We expect the full-year profit before tax to be above current market expectations.” The stock is trading at 12.3 times analysts’ upgraded earnings forecasts of 28.5p a share, while an expected dividend of 10.5p for the year gives a solid 3% yield.

H&T is thriving and with a retail operation and personal loans business growing alongside pawnbroking, the group is forecast to deliver annual double-digit earnings growth for the foreseeable future. My Foolish friend Roland Head bought the stock recently and it looks very buyable to my eye too.

The post 2 ‘secret’ growth stocks I’d buy in February appeared first on The Twelfth Magpie.

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G A Chester 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.

Further progress

Reporting on Wednesday was gold exploration and development company Hummingbird Resources (LSE: HUM). It is on track and on budget to deliver first gold production by the end of 2017. This follows a positive quarter, with the company making progress with its construction operations. It has also entered into an agreement with African Gold Group to develop its gold project. This could ultimately increase both the annual production output and the life of the mine at a similar operational cost.

While Hummingbird Resources is currently a lossmaking business, production is expected to propel it into profitability. This could boost investor sentiment in the short run – especially since the market does not seem to have priced in its future financial performance. The company trades on a forward price-to-earnings (P/E) ratio of just 9, which suggests that it could offer upside potential.

With the price of gold rising already in 2017, its outlook appears to be positive. Concerns surrounding North Korea could propel its price even higher. Similarly, concerns about the global economic growth outlook may lead more investors to purchase gold. This would clearly be good for Hummingbird Resources and may help it to generate higher profitability as well as a rising share price over the long run.

Turnaround potential

Also offering a share price below £1 at the present time is Gem Diamonds (LSE: GEMD). It trades at 78p versus 38p for Hummingbird Resources and also appears to have a bright long-term future.

Of course, Gem Diamonds is in the midst of a somewhat challenging period. Its bottom line is due to come under pressure in the current year, with a forecast fall in earnings of 83% expected by the market. It has struggled to cope with falling small gem prices and in response has put its new mine in Botswana up for sale.

While this could mean that the stock is relatively volatile in the short run, it is due to post a successful turnaround in 2018. Its bottom line is expected to rise by 459%, which puts it on a forward P/E of just 8.7. This suggests that it offers a wide margin of safety and could be worth buying for the long run.

Certainly, Gem Diamonds has a somewhat unclear future. Diamond prices may fall and this could negatively impact its financial performance. However, with a low valuation and upbeat forecasts, it appears to have an attractive risk/reward ratio.

The post 2 growth stocks under £1 appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any 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.

The South Africa-focused digger announced that revenues fell 15% during January-June, to $92.9m, a result that pushed underlying EBITDA 70% lower to $13m. Gem Diamonds suffered as a result of falling stone prices in the first half — the average price per carat declined to $1,779 from $1,899 a year earlier. But this was not the company’s only problem, of course, with ongoing production problems causing the number of recovered carats to reverse 12% year-on-year to 50,478.

The company announced that its group-wide cost reduction programme is now under way, with $15m worth of annualised efficiency and cost reduction initiatives having been identified already and due to kick in from this October.

In other news, Gem Diamonds announced that it had received an offer for its Ghaghoo mine in Botswana, which has been on care and maintenance since March due to weak demand for the size and quality of output produced by the asset. The company is currently considering the offer, it advised.

In a hole

The share price has remained in a tailspin during the course of 2017 due to difficulties in the global diamond  market.

The company noted that that “the global market for both rough and polished diamonds remained cautious” during January-June, adding that “financing challenges persist and the volatile macroeconomic environment continues to create challenges for the middle diamond market.”

As a result, the City is expecting earnings at the business to topple 83% in 2017, resulting in a massive forward P/E ratio of 44.9 times.

While Gem Diamonds’ may take a more favourable view of the market in the longer term, the current issues hampering stones demand could very well drag on for some time yet. And these compressed diamond prices, combined with lower group output, are heaping huge pressure on the digger’s balance sheet right now. The company had net debt of $14.2m on its books as of June versus cash on hand of $66.5m a year earlier.

I reckon the digger is a risk too far right now.

In the doghouse

I am also less than assured by the investment case of Pets At Home (LSE: PETS) right now.

Latest Office of National Statistics retail sales data for July released today showed sales growth of just 0.3% in July, matching the prior month’s figure. And the story was particularly bad for sellers of non-food goods — demand for inedible products dropped 0.1% last month, the ONS revealed.

And I expect pressure on the likes of Pets At Home to build in the months ahead as the squeeze created by stagnating wage growth and rising inflation worsens. Sure, the company reported a perky 2.7% rise in like-for-like sales during April-June, but I expect this top-line uptick to prove a mere flash in the pan.

The City expects earnings at the Wilmslow business to fall 12% in the year to March 2018, and I reckon share pickers should be braced for extended bottom-line trouble. I for one won’t be investing any time soon despite the retailer’s conventionally-attractive forward P/E ratio of 14.5 times.

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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. 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.

Growth potential

Reporting on Friday was gold producer Trans-Siberian Gold (LSE: TSG). The company reported results for the 2016 financial year. They showed a small rise in revenue of 2.5%, with profit before tax increasing by 32%. Much of this rise was because of an increase in the price of gold. It experienced a rise from $1,146 per ounce to $1,248. However, the company was also able to reduce its cash costs to $426 per ounce from $473 in the previous year. This shows that it is becoming more efficient, which could help to improve its future profitability.

As well as improving profitability, Trans-Siberian Gold also paid its maiden dividend. This equates to a dividend yield of over 10%, although the payout was classed as a special dividend. This means there is no guarantee of further payments in future, although it signifies that the business has sufficient cash through which to invest for future growth.

Looking ahead, the gold price could perform relatively well. The world economy faces an uncertain period, and inflationary forces appear to be relatively robust. This could increase investor demand for the precious metal and cause a further rise in the gold price. This would be positive news for the firm and, while it remains a relatively risky small-cap stock, its high return potential could make it a shrewd buy.

Growth potential

Also offering investment potential within the mining sector is Gem Diamonds (LSE: GEMD). The diamond producer has experienced a somewhat mixed recent period in terms of profitability. In the last five years, its bottom line has increased at a double-digit pace at times, but likewise has also deteriorated sharply in other years. Of course, this has been an uncertain period for the wider sector, with volatility in commodity prices and profitability likely to continue over the medium term.

Therefore, it may be prudent for investors in the industry to seek wide margins of safety before buying. This is in case there are downgrades to forecast growth rates.

Gem Diamonds appears to offer a significant discount to its intrinsic value. It is forecast to report a rise in earnings of 249% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.1, which suggests that it offers growth at a reasonable price. Clearly, further volatility could be ahead, but with a sound strategy and low valuation, it could prove to be a profitable investment over the long term.

The post 2 forgotten small-caps with growth potential appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any 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.

All that glisters

It’s a bit risky investing in diamond mining, don’t you think? I’d agree, but that doesn’t mean there aren’t bargains to be had.

Look at Gem Diamonds (LSE: GEMD) for example. Its shares have lost 21% over a very erratic two years, including a 4% fall to 112p on the day 2016 results were released.

On the face of it, the figures don’t look good, with revenue falling by 24%, EBITDA down 39% and pre-exceptional earnings per share down 58%. On top of that, the firm placed its Ghaghoo operation “on care and maintenance” due to the low prices obtained for its diamonds, leading to a non-cash impairment of $176.5m and a reported loss per share of 114.9 cents.

But the company, which focuses on looking for large high-quality diamonds, found five larger than 100 carats during the year (down from 11 the previous year), and 34 with values in excess of $1m each. The haul included an 11.8 carat pink diamond, and the largest was a 160.2 carat white one.

Chief executive Clifford Elphick told us “the supply demand fundamentals for the diamond industry remain strong,” and that’s part of what makes Gem Diamonds look like an attractive prospect to me.

I usually turn my nose up at shiny things that have little or no value other than ‘Ooh, that’s pretty’. But the diamond market is very tightly controlled, dominated by the giant De Beers, which keeps a tight control on supplies to maintain high prices.

With earnings expected to recover strongly in 2018, we’d see a P/E of only 8.5 and an attractive low PEG of 0.2, and that makes me think Gem shares are good value.

Recruitment success

My second pick is recruitment specialist Robert Walters (LSE: RWA), whose shares took a bit of a nosedive when the result of the Brexit referendum became known. It was irrational, with the company having a very wide global reach, and the subsequent recovery means the short-term super bargain is now gone. But are the shares still worth buying?

Going on the long-term quality of the company and on Wednesday’s 2016 results, I’d say yes.

The firm described it as a record performance, highlighting a 26% rise in pre-tax profit to £28.1m, with earnings per share up 34% to 27.7p. And its reach has now extended into four new countries: Canada, India, the Philippines and Portugal. The figures from just about everywhere were up, and 69% of net fee income now comes from outside of the UK.

Chief executive Robert Walters cautioned us about “the unpredictable geopolitical environment,” but reckoned that the firm’s “global footprint coupled with the range of recruitment services we provide positions us well to maximise opportunities for growth as they arise.“

The dividend is up 20% to 8.5p, and though we’re looking at only modest yields of around 2% to 2.5%, the cash is very well covered by earnings and is progressive — and a progressive dividend can do a lot better in the long run than a higher dividend today.

Forecasts suggest steady earnings growth over the next two years, which would put Robert Walters shares on a 2018 P/E of under 14. I think that’s cheap.

The post 2 stocks looking cheap on sparkling results appeared first on The Twelfth Magpie.

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• With a 7% yield, is this dividend share a no-brainer?
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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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Alan Oscroft 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.

South Africa-based Petra and its small-cap peer Gem Diamonds (LSE: GMD) are working hard to take market share from sector heavyweight, De Beers. Both stocks look very affordable based on forecast earnings.

With the diamond market seeming to stabilise, is now the right time to buy into this sector?

A confident outlook?

Diamond production rose by 30% to 1,097,523 carats at Petra Diamonds during the three months to 30 September. The group received revenue of $94.7m during the period from the sale of 745,447 carats. Petra didn’t hold a diamond tender during the same period last year, so there’s no comparative figure.

Expansion programmes in the firm’s Cullinan and Finsch mines remain on track, and are starting to deliver results. Based on today’s figures, the group appears well positioned to hit broker forecasts for full-year sales of $576m.

Petra shares have risen by 64% over the last 12 months as diamond prices have recovered after production cuts by De Beers helped bring the market back into balance. Petra shares look decent value to me, on a forecast P/E of 10 and a prospective yield of 1.5%.

My one remaining concern is how quickly Petra will be able to reduce its debt levels. Net debt rose from $384m to $463m during Q1. The company says that this is within the expected range and that it should start to generate free cash flow during the second half of the current financial year. This implies that net debt should start to fall from January.

If it does, then Petra shares could still offer good value for growth investors. Earnings per share are expected to rise by 68% this year and by a further 50% in 2017/18. This puts the stock on a 2017/18 forecast P/E of just 7.

What about Gem Diamonds?

Petra’s valuation depends on future growth. By contrast, Gem Diamonds’ current valuation assumes that earnings will remain flat. That’s why the stock is currently trading on a forecast P/E of 7 for both 2016 and 2017.

The group’s short-term focus is on maximising cash generation and priority is being given to dividends. Shareholders should be rewarded with a 4% dividend yield this year. This dividend looks safe to me, given that Gem Diamonds ended the first half of 2016 with a net cash balance of $37m.

The downside of investing in Gem is that the growth potential of its Letšeng and Ghaghoo mines appears more limited than those of Petra.

Is now the time to invest?

Diamond mining stocks aren’t quite as cheap as they were one year ago. But I believe that both Gem Diamonds and Petra Diamonds have the potential to deliver decent returns for shareholders over the next few years.

Which stock is best may depend on your investing style. Growth investors are likely to opt for Petra, whereas contrarian value investors will probably be more attracted to Gem Diamonds.

Ultimately, it’s your choice.

The post Are diamonds an investor’s best friend? 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.