Oil still a bargain

Oil giant BP (LSE: BP) has seen its shares gain 17% since 23 June, to 452p, and they’re up 47% since their 2016 low point on 11 February. Part of the reason has been the recovering price of oil, of course, although Brent Crude has dipped back to $47 per barrel from over $50. But the latest spike is a direct result of the post-Brexit ‘flight to safety’, so are BP shares still worth buying at their higher valuation?

The long-term value of BP is entirely independent of whether the UK is a member of the EU or not, and so hasn’t really changed between 23 June and today. And I reckon the strong buy case for BP is unchanged by the recent price rise. Fundamentals don’t mean much this year, but forecasts for 2017 value BP shares at 15 times predicted earnings. Those forecasts have been strengthening over the past three months, with a pretty strong buy consensus on the shares now.

But the killer reason to buy, for me, is those tasty dividends that should yield over 6%. BP has repeatedly said it doesn’t want to cut its dividend, and with oil price prospects looking good over the next 18 months, I’d say it’s looking increasingly safe.

Miners too

The mining sector is the other obvious one that’s utterly indifferent to local politics of places like Europe, and it has also benefited from the rush to invest cash anywhere that doesn’t look risky. Shares in Glencore (LSE: GLEN) have gained 21% since the day of the vote, to 185p, and are up 161% since their lowest this year on 20 January.

It’s not all Brexit, as Glencore was already making firm progress in its recovery plan, disposing of assets to get its massive debt pile down to manageable levels. And with the outlook for worldwide demand and the price of commodities brightening, Glencore’s long-term future is looking safe.

The P/E multiple on Glencore shares is still a bit daunting, mind, at 47 based on this year’s expectations and dropping only as far as 33 on 2017 forecasts — and that’s without any meaningful dividends. A P/E to earnings growth ratio (PEG) of 0.7 based on 2017’s forecast 46% rise in EPS looks attractive, but that could well be a post-recovery one-off. A solid company, but I think I’d wait a while.

A bank, really?

Banking has been hard hit, with Lloyds Banking Group down 22% since the referendum and Barclays down 20%. But Asia-focused banks like Standard Chartered (LSE: STAN) have bucked that trend — its shares are up 4% since 23 June and 55% since 11 February.

With its top-level management team shaken up and serious steps being taken to turn its fortunes around, Standard Chartered could be an attractive long-term bet. While forecast pre-tax profits will still be well below those from recent years, after we’ve seen a decline from £6.85bn in 2012 to a £1.5bn loss last year, the £1.2bn profit pencilled-in for 2017 would drop the P/E down to under 16.

Whether the potentially lower risk makes Standard Chartered a better buy now than Lloyds or Barclays on forward P/E values of 8, that’s for you to decide.

The post Is it time to buy post-Brexit winners BP plc (+47%), Glencore plc (+161%) and Standard Chartered plc (+55%)? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays and BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The Beginners’ Portfolio is a virtual portfolio, run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and don’t constitute advice to buy or sell.

It can be nice to not look at our portfolios for a while — at least if we return to a pleasant surprise, that is. And when I updated the valuation of the Beginners’ Portfolio last week, I was pleased to see gains in most of our holdings taking us to a 35% gain since inception in 2012, after accounting for all costs and spreads.

Banking brightness?

I was especially pleased to see Barclays (LSE: BARC) coming back a little. At 165p, we’re still on an overall 34% loss, even after including dividends. But Barclays shares have picked up 16% now since their 2016 bottom on 5 April. The falling value of sterling in response to recent strengthening of the EU “Leave” campaign, however, has taken its toll on the banks, and Barclays shares have given up some of their recovery. I see a “Brexit” vote as possibly the biggest threat to Barclays right now — indeed, I fear it would devastate the UK’s banking sector in general.

Looking at Barclays itself, now that the market has had time to digest the true meaning if its recent dividend cut, I see sentiment as definitely having turned for the better. New boss Jes Staley is still in his honeymoon period, and he’s making the best of it to implement changes that will cause short-term pain but should set Barclays up for a stronger long-term future.

Technology boost

After staring the year weakly, shares in ARM Holdings (LSE: ARM) have been regaining ground — from their low of 11 February, they’re back up 12% now to 954p. Overall we’re up only a very modest 3% on ARM, but the shares have been in the doldrums for the past year or so, and as forecasts continue to strengthen we’re seeing a P/E multiple that’s looking increasingly attractive. If forecasts prove accurate, ARM’s P/E would drop as low as 24.5 for the year ending December 2017, and that’s lower than it’s been for years.

There really is no sign of ARM’s earnings growth falling off any time soon. First quarter figures released in April showed a 15% rise in normalised EPS after sterling revenue rose 22%, and the signing of new processor technology licences together with extensions of existing agreements is going strong — in the quarter, 4.1 billion ARM-based chips were shipped, for a 10% year-on-year rise.

And I remain insistent that mobile computing is still in its infancy.

Commodities recovery

Rio Tinto (LSE: RIO) has been a disappointment so far, as I greatly underestimated the depth and duration of the commodities downturn — and the portfolio is 28% down on Rio shares. But things have been starting to pick up, and since their low on 20 January, Rio Tinto shares have regained 23% to reach 1,945p. Figures from China have been better than expected of late, and the prices of some metals and minerals have been on the rise — Rio’s biggest product, iron ore, has been steadily picking up since its low point in December 2015.

I know I’ve said it before, but I really do think we could be past the bottom now for Rio Tinto.

Recovering commodities prices have helped our investment in BP too, with oil’s breaking of the $50 level helping the shares to a 20% rise since 11 February, to 369p, and boosting confidence in the dividend.

A storming rise for Sirius Minerals , to 18.7p, has taken us to a 29% profit so far. It’s still high risk, but multiple off-take agreements for the firm’s potash are helping boost confidence.

A solid recovery from Aviva has given us a 46% gain so far, including dividends, and I reckon this is one with a lot more to come. The shares are on a 2017 P/E of only 8.3, with a dividend yield of 6.2% forecast, and that still looks a steal.

The post Beginners Portfolio: Barclays plc, ARM Holdings plc and Rio Tinto plc take us to a 35% gain appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Aviva. The Motley Fool UK has recommended ARM Holdings, Barclays, BP, 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.

Undervalued insurance

The insurance sector still seems to be inexplicably in the dumps after the financial crisis, and I reckon there are plenty of bargains to be had. Aviva (LSE: AV) remains my favourite, even though the share price has stubbornly stagnated since I bought some — despite a recent rally, it’s still down 13% over the past 12 months, at 450p.

And that’s a year in which the company has seen its restructuring strategy coming to fruition. At results time in March, chief executive Mark Wilson said that

“With a Solvency II ratio of 180% and a surplus of £9.7 billion, our balance sheet is one of the strongest and most resilient in the UK market. Over the last four years, we have tripled our economic capital surplus“.

Forecasts suggest a doubling in EPS this year to put the shares on a P/E of under 10, dropping to under nine on 2017 forecasts, and dividend yields of 5.4% and 6.1% are expected for this year and next. I think Aviva could double your money (and mine) in two or three years — providing we don’t leave the EU and plunge into a fresh economic crisis.

A great track record

One approach is to examine our past growth stars and look for ones that are likely to continue, and I think the obvious one is ARM Holdings (LSE: ARM). The designer of the chips that power iPhones and all manner of other devices has seen its shares soar by a stunning 1,025% since the end of 2008, as smartphone mania has taken hold.

For years I’ve been saying that the mobile computing revolution is still in its infancy, and that’s still true today — I doubt we’re seeing even 5% of the processor usage that we’ll have in another 10 years. There’s no guarantee that ARM will still dominate, of course, but while demand for its designs is still climbing and analysts are still forecasting double-digit rises in annual earnings, I can see a lot more share price growth to come.

Oh, and the stagnation of the past couple of years has put ARM shares, at 977p, on a P/E of 25 based on 2017 forecasts — their cheapest for a good few years.

Mining recovery?

Could a recovery in the downtrodden mining sector do the trick for you? It might surprise you to see that I’m considering Anglo American (LSE: AAL) as a candidate for doubling. The South Africa based miner has, after all, suffered from its own internal problems, in addition to the slump in metal and mineral prices, and as a result the share price has lost 80% since the end of 2010.

But since this year’s low on 20 January, we’ve seen a 180% rise to 636p, nearly trebling your money if you managed to get in at the right time. Can it continue?

Well, the prices of some of Anglo’s products have been recovering nicely of late, and analysts are predicting a bottoming in the firm’s declining earnings this year — there’s a 37% EPS rise forecast for 2017, which would put the shares on a P/E of 15.5.

Sustained rises will probably still be needed to keep Anglo’s shares rising, but I can’t help feeling we’ll be looking back at early 2016 as the moment of maximum pessimism and the perfect time to buy.

The post Which will double the quickest, Aviva plc, ARM Holdings plc or Anglo American plc? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Aviva. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Why is it so cheap?

A few years ago, if you’d tried to tell people that it would soon be possible to buy shares in Lloyds Banking Group (LSE: LLOY) on a P/E of under 10 with a confident 7% dividend yield on the cards for 2017, you’d probably be laughed out of the room.

So why are Lloyds shares so cheap at just 73p? It’s partly due to the malaise still affecting the banking business — it seems to me that the good banks are being marked down as fiercely as the bad ones. Part of it, too, will be down to the overhang of the government’s remaining holding and the effect it could have on the price when it’s all sold off. But I think Brexit fears must surely be playing their part, too.

I make no secret of my opinion that voting “leave” on 23 June would tip us into a new economic mess just as we’re getting out of the last one, and the Treasury seems to share that view with this week’s warning that we could lose up to 820,000 jobs within two years if it happens. A lot of that damage will surely be done to London’s banking centres.

But I’m still happy to hold Lloyds shares, and I can see two crucial things needed for them to come good — a “remain” vote next month, and then the sale of the government’s stake. Once those two events are behind us, I can see a doubling in the price as a serious possibility.

Will it ever come right?

A warning this week plunged Marks & Spencer (LSE: MKS) into turmoil again, as the company announced that poor clothing sales coupled with difficult trading conditions will have “an adverse effect on profit in the short term“. Chief executive Steve Rowe said “We are clear on the actions needed to recover and grow Clothing & Home, which is our top priority” — but come on, M&S has been saying that for years!

It’s no surprise that M&S shares plunged on the day, and they’re now down 11.5% since Tuesday’s close, to 393p — and over the past 12 months, we’re looking at a 33% loss.

What would it take for the shares to double in price? With forward P/E ratios of around 10 to 11 and predicted dividends at 4.5% and more, there’s clearly room for growth. But we need to see the end of the rhetoric and the start of some results in the clothing department before any serious uprating is likely… and that could still take some time.

Profit from potash?

Sirius Minerals (LSE: SXX) must be a candidate for doubling, mustn’t it? Actually, since this year’s low point in February, the shares have almost done that already, with a 76% rise to 18.6p. But shareholders will be hoping for a lot more than that in the coming years, having invested at such an early stage of the company’s York Potash Project.

There are huge deposits of polyhalite under the North York Moors, and Sirius is hoping to rake in between $1bn and $3bn a year by the time the plant is fully operational. But that isn’t expected until 2021, and the funding needed to reach that stage is still to be found.

I reckon Sirius shares will either multi-bag in the next five years, or will collapse if too much dilution is needed to secure the funding — though continuing upping of resource estimates puts me in the multi-bagger camp right now.

The post Which will double the quickest, Lloyds Banking Group plc, Marks & Spencer Group plc or Sirius Minerals plc? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. 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.

Diversified miner and commodities trader Glencore (LSE: GLEN) is the biggest faller in the FTSE 100 over the past 12 months, with a 56% drop to 128p — and a 75% fall over five years. But since the start of 2016, Glencore shares gave actually regained 52%. So is the slump over?

The company has been working to get its balance sheet in a better shape as it was pretty much swamped by debt, and after a bout of asset disposals it’s greatly improved now — at least with a view to the longer term. After last year’s posted loss, we’re expecting to see a return to profit this year with a 45% rise in EPS forecast for 2017.

That would put the shares on a P/E of 23, which might seem a bit steep — but earnings levels would still be much lower than before the slump and there’s clearly a significant recovery priced in right now.

Glencore remains highly leveraged still, and it really would need commodities prices to continue along a uninterrupted upwards path. I think that makes Glencore still too risky, and I reckon this year’s gains could easily be lost before we get back to sustained growth.

Struggling bank

Over at Standard Chartered (LSE: STAN), the bank that has been suffering from the Chinese slowdown, in addition to its own much-criticized management, things aren’t looking much better with a 47% share price fall to 547p. But Standard Chartered shares have been picking up again, with a 39% share price recovery since 11 February.

Although Standard Chartered has been working hard on a restructuring to get it back on a sound footing, operating income still declined by 24% in the quarter to March, and there’s only a small profit forecast for this year (although anything is better than last year’s loss).

With a recovery in earnings for 2017 forecast to reduce the P/E to 15, Standard Chartered could be on the mend — but when you can pick up Lloyds Banking Group shares on a P/E of 9.4 and Barclays on 8.3 for the same year, why would you take the risk?

A better miner?

Back to the mining sector again with Antofagasta (LSE: ANTO) now, in third place with a 12-month loss of 44%. Though as with the other two, Antofagasta shares have been recovering recently, with a 26% rise since 20 January to 437p.

The big risk for Antofagasta is that it is almost entirely dependent on copper, and the price of that metal has not been recovering the way iron ore has. In fact, the 2016 recovery has reversed in May, and copper prices are now hardly any higher than they were six months ago and are still way down over 12 months.

Add to that the 21% year-on-year fall in demand for copper from China in April, and I can see Antofagasta shares suffering further before there’s a sustainable recovery.

The post When will the slump end for Glencore plc, Standard Chartered plc and Antofagasta plc? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But by the same token, surely the best time to buy such companies is when prices in their sectors are staging a comeback, as they’re more likely to reward us with multi-bagger gains than the FTSE 100 giants.

Brighter prospects

Look at Amur Minerals (LSE: AMC), for example, whose share price has been in a bit of a slump — at 4.8p as I write, Amur shares are down 90% from their high point in June 2015. But the latest independent update on the Kubuk nickel-copper deposits at the firm’s Kun-Manie project, just published a few days ago, has increased the likely available resources again. Amur now says the total measured and indicated resources at the mine in the far East of Russia have doubled since April 2015, and this latest step concludes the evaluation phase of Amur’s Definitive Feasibility Study.

There is, of course, still a long way to go, but any progress in the prices of nickel and copper will surely help. Both have been picking up, though both have dropped back a little of late — but if metals prices really have bottomed out, the prospects for Amur will surely have brightened a little.

Oil opportunity

With the price of a barrel of Brent crude getting ever closer to the magic $50 mark, the future for Xcite Energy (LSE: XEL) must be looking a little rosier too. Xcite shares are down over the past 12 months, to 14.9p, but we’ve actually seen a 32% recovery since a recent low on 20 January.

Sustainable profits from Xcite aren’t expected before 2018, and there will be plenty of debt that needs to be serviced before then — in fact, when its full-year results were released in March, the firm told us it was in talks with bondholders in order to “develop financial flexibility” regarding bond payments due on 30 June.

With Xcite’s reserves update issued the same day looking pretty positive, the chances of the firm getting its finances sorted for the longer term are looking increasingly good to me — although it’s clearly still only for those who can handle a bit of risk.

Shiny

Platinum is one of those precious metals that has uses other than just sitting around looking shiny, and the price of the stuff has been picking up lately, to $1,055 per ounce at the time of writing. And that hasn’t done Jubilee Platinum (LSE: JLP) any harm at all, with Jubilee shares having more than doubled in the past 12 months — they’ve been on a bit of a slow fall for a few months recently, but an operational update on 12 May gave the shares a boost, and they stand at 3.3p today.

The chrome recovery plant operated by subsidiary Jubilee Tailings Treatment Company is now fully operational and has achieved a sustainable processing capacity that’s 30% ahead of expectations. Production of 6,000 tonnes of chromite is targeted for May, rising to 8,000 tonnes in June, and that surely makes Jubilee shares that bit more attractive.

The post Is it time to buy Amur Minerals Corporation, Xcite Energy Limited and Jubilee Platinum plc? appeared first on The Twelfth Magpie.

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It shouldn’t have come as a surprise as Glencore announced late last year that it was cutting production of copper, zinc, lead, coal and oil in response to low prices — copper output was down 4% on the first quarter of 2015, with zinc down 28% and coal down 17%. But full year guidance remains largely unchanged, with the exception of a 0.3m bbl drop in oil due to reduced exploratory drilling. So are Glencore shares good value now?

With great progress made in debt reduction, commodities prices on the up again, and a return to strong earnings growth on the cards, I think the future is solid — even if Glencore shares are on a short-term high P/E.

Fashion boost

Next (LSE: NXT) shareholders, meanwhile, woke to sunnier news and to see their shares up 4% to 5,180p, despite the clothing chain reporting a 0.2% drop in sales between 31 January and 2 May (and a 0.9% drop in full-price sales). That ‘s at the lower end of the firm’s full-year sales guidance of -1% to +4% — and the company responded by lowering and widening it to a range of -3.5% to +3.5%, with pre-tax profit of between £748m and £852m indicated.

The increasing shift from in-store sales to online sales is also apparent, with full-price Next Retail sales down 4.7% in the period while Next Directory sales climbed by 4.2%.

Even with the small sales fall, the cash just keeps flowing — Next expects to generate £350m of surplus cash in the current year, and has already returned £181m through share buybacks and a special dividend.

Next shares are down 31% so far this year and on a forward P/E of 11, dropping to 10.6 on January 2018 forecasts, and for such a well-managed company that looks like a long-term bargain to me.

Banking upstart

Virgin Money (LSE: VM) shares spiked when the markets opened, but at the time of writing they’re down 2.2% to 346.5p, even though first-quarter mortgage lending came in 30% higher than a year ago, at £2.1bn.

With the bank having just a 3.4% share of the UK’s mortgage lending so far and the Virgin brand seen as a trustworthy one, there’s clearly significantly more scope for expansion than the bigger lenders and we could be in a golden age for the country’s challenger banks. Chief executive Jayne-Anne Gadhia was “delighted to report it has been another excellent quarter for Virgin Money,” and I can understand her enthusiasm.

The share price has been erratic, but since 20 January we’ve seen a 29% rise, and strong EPS growth forecasts suggest a P/E dropping as low as 8.5 by the end of 2017. Virgin Money shares could definitely be worth a punt.

The post Here’s Why Glencore plc, Next plc and Virgin Money Holdings (UK) plc could be shares to buy now! appeared first on The Twelfth Magpie.

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The big attraction is the quality and quantity of the polyhalite form of potash that the company is sitting on, and the potential demand for it as a fertilizer — only this week we’ve heard of yet another encouraging trial result, this time in China on chili peppers, tea and oilseed rape. In fact, companies have been queuing up to put in their orders for it, even though first production is not expected until 2021.

How much will it cost?

The downside, though, is the time it’s still going to take to get the development off the ground and into profit, and the cost that is going to be incurred in doing so. While March’s Definitive Feasibility Study valued the development at a net present value of $15bn, rising to $27bn by the time production commences, and suggested margins of 70-85%, we have no idea by how much the interests of current shareholders will be diluted by time the first cash from sales rolls in.

But that hasn’t stopped the company’s directors from getting in on the act, and we’ve heard of two of them buying shares in the last week. First was non-executive director Elizabeth Noel Harwerth, who bought 49,608 shares at an average price of 18.12p on 28 April. The investment of a fraction under £9,000 is perhaps not a massive one, but it’s not to be sniffed at. Then a day later we heard that another non-executive director, Jane Ann Lodge, had made a more substantial purchase of 100,000 shares at 18.35p, for a total investment of £18,350 and taking her stake up to 200,000 shares.

And that comes after a spate of director purchases, including the exercise of warrants by chairman R J Scrimshaw to take his stake to 40 million shares, towards the end of 2015. But does it mean we should join them and buy Sirius shares?

Do they know best?

There’s a school of thought that the directors of a company are best placed to know its prospects, and that we can do well by following them in their buying and selling decisions. And there are statistics to back it up as a strategy, but with plenty of caveats. For one thing, you need to understand a director’s reason for buying or selling — they might just want a new car, or be moving house, or something like that, and a sale might not reflect any negative feeling whatsoever.

It’s also important to follow the aggregate of directors’ dealings. As individuals will buy and sell for their own reasons, what we need is significant net purchases over a decent length of time. On that, I think Sirius scores reasonably well — director dealings in the past couple of years have been predominantly purchases and warrant exercises.

Should you buy?

Of course, we shouldn’t be driven solely by what the directors are doing, and you should only buy Sirius shares if you’re prepared for a long wait for profits, you’re happy with what is likely to be a volatile share price, and you can stand the risk associated with the unknown future funding of the project. But if that sounds like you, then I’d take these director purchases as a little bit of extra encouragement.

The post Should you buy Sirius Minerals PLC shares while directors are buying? appeared first on The Twelfth Magpie.

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But then you notice its shares have actually more than doubled in a little over six months, to 176p today. And analysts have a turnaround on the cards, with a return to positive EPS forecast for this year followed by a massive rise next year that would take the P/E down to around 13.5. Does that sound like a tasty recovery candidate?

It’s KAZ Minerals (LSE: KAZ) I’m talking about, and the omens are starting to look good. Copper is the company’s business, and the five-year slump in the price of the stuff might just have started its reversal — over the past three months it’s climbed back to around the $5,000 per tonne mark. The big factor is China, and the bearish view of the country is starting to soften as monetary easing is looking more likely. But predictions aren’t great, with some suggesting copper demand isn’t going to change much over the next 12 months.

The timing might not be perfect, and KAZ Minerals shares might languish for a little while longer. But with a long-term view, I can’t help thinking they’re good value now.

Horse Hill

UK Oil & Gas (LSE: UKOG) has just upped its stake in the Horse Hill development in the Weald Basin near Gatwick, by buying out Angus Energy Holdings‘ remaining 7.8% stake in the two relevant licences. The transaction, costing £1.8m as a combination of £1m in cash and £0.8m in UK Oil & Gas shares, takes the company’s share of the so-called Gatwick Gusher licenses from a whisker under 20% to 27.3% (and takes its interest in Horse Hill Developments Limited to 42%).

Taking on a bigger share of the risk at a time when huge amounts of cash are going to be needed to reach actual production could be seen as unnecessary, but that’s offset by the partial funding of the deal with UK Oil & Gas shares — if success leads to the big price rise that many are hoping, it could turn out to be a cheap deal. On top of that, the company isn’t dependent on just this one project, having interests in a number of other assets which are already productive.

But the currently unknown development costs and inevitable future fundraising, which come with no idea of the final dilution to be faced by existing shareholders, means I’d still keep away.

A new hope?

88 Energy (LSE: 88E) shares leaped skyward in February when the company announced a major discovery at its Icewine#1 exploration well. And if you’d bought on 12 February, by 23 February you’d have enjoyed a gain of 138%. Since then the price has fallen back from a peak of nearly 3p to 2.1p, including an 8% rise on a volatile day so far today — it’s definitely not been an investment for the weak-hearted so far!

Is 88 Energy a good punt for those with a stronger constitution? There’s little doubt that there’s great potential in the firm’s oil shale find, but the problem right now is that it’s unquantifiable. 88 Energy has no profits on the cards any time soon and no forecasts, and the share price is currently driven only by news flow — and I can see the cycle of news, price rise, no news, price fall, news… going on for a while longer. At this stage, that’s just not my style of investment.

The post Are KAZ Minerals PLC, UK Oil & Gas Investments PLC And 88 Energy Ltd Poised For Success? appeared first on The Twelfth Magpie.

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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.

Seriously impressed

After remaining in the doldrums for the rest of 2015, since late January this year the shares have almost doubled, to 146p as I write. The main thrust has been Glencore’s impressive results from its debt-reduction programme. At the end of 2014, net debt stood at $30.5bn, and that had fallen a little to $29.6bn by June 2015. But then, in September, Glencore announced a plan to get the figure down closer to $20bn by the end of 2016, through a combination of equity issue, cost reductions and asset disposals.

At 2015 results time, things were looking better, with the end-2016 debt target reduced further to $17-18bn. And with $4-5bn of asset disposals planned for the year, that’s looking realistic. I’m actually seriously impressed by Glencore’s decisive actions, and I expect the shares to do well in the medium term when commodity prices firm up some more, especially as the company is so diverse. But I’m turned off at the moment because, with forecast P/E multiples still pretty high, I see risk of the share price falling back some. And even a reduced debt of $17-18bn is still a hefty sum.

Still on shaky ground

We’ve seen a bigger recent recovery at Anglo American (LSE: AAL), whose shares have climbed by 165% since late January, to 628p. There’s still a sizeable fall in earnings on the cards for this year, but analysts have a return to growth pencilled in for 2017, which would drop the P/E to a respectable 15. But even after that, the shares are still down 81% over a traumatic five-year period that has seen the company massively restructuring and slimming down, with the prospect of going bust having been a real possibility at one stage.

Anglo American’s ongoing cost-cutting is bearing fruit, but it did record a $5.5bn pre-tax loss for 2015. And with those results we heard of an “environment that has been deteriorating at a faster pace“, with the firm having to reach for further “detailed and wide-ranging measures to sustainably improve cash flows and materially reduce net debt“.

Anglo American is still struggling too much for me to be interested, and with sentiment swaying so wildly, I can see the company’s recovery and share price stabilization taking longer than many seem to think.

Big recovery to come?

And that brings me to my favourite of these picks, BHP Billiton (LSE: BLT). The shares are down 67% over five years, and while that’s not great, it’s the best performer of the three — though we’re looking at a relatively modest 34% gain since January’s low, to 803p. Like the others, BHP has been cutting costs and splitting off non-core assets, and at results time in February the firm switched to a new dividend policy of making “a minimum 50% payout of underlying attributable profit at every reporting period“, with the flexibility to pay extras as and when appropriate.

BHP had been one of the few still making decent dividend payments, with a yield of 3.4% forecast for the year to June 2016, and that really hasn’t been too sensible when balance sheets need to be strengthened. So that’s a good sign. The downside to BHP for me is debt, and with $25.9bn outstanding at December 2015, we’re looking at Glencore-style levels. Still, at least that was largely unchanged from a year earlier.

This year should be the crunch year for BHP, with a massive fall in EPS on the cards, but analysts expect  an equally dramatic recovery next year. It does put the shares on a June 2017 P/E of around 30, though it’s harder to make much sense of that with such dramatic earnings changes happening. I’m torn between BHP and Glencore, but I can’t help feeling that the apparently high P/E has put people off the former, and so BHP gets my nod — if only marginally.

The post Why I’d Buy BHP Billiton plc Ahead Of Glencore PLC & Anglo American plc appeared first on The Twelfth Magpie.

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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.