However, I think there’s a strong case for buying Fresnillo’s shares right now. This despite its failure to rally on surging gold and silver prices over the last couple of months, in contrast to its soaring FTSE 250 peer Hochschild (LSE: HOC). The table below neatly summarises how things stand.

As you can see, Hochschild’s shares have climbed 30% on the back of low double-digit rises for gold and silver. This is how it’s supposed to be, due to operational gearing making miners a leveraged play on the metals prices. So how come Fresnillo’s shares have fallen 20%?

Misfiring

Historically, Fresnillo has been a popular pick with long-term investors seeking exposure to precious metals, along with a dividend (current-year forecast yield 2.3%). It’s the world’s leading primary silver producer and Mexico’s largest gold producer, with seven operating mines and a high-quality pipeline of projects and prospects. As a FTSE 100 stock, the liquidity of its shares has also made it a favourite with shorter-term traders.

However, over the last 18 months or so, it’s got into an unwelcome habit of downgrading production guidance, due to such things as operational delays, and working through lower ore grades than expected in one or two areas of its operations. The persistence of these challenges has led many long-term investors to throw in the towel. Meanwhile, the last thing traders want in a leveraged play on strengthening gold and silver prices is a company that keeps falling short on its production guidance.

Looking to the long term

I don’t think the fundamental attractions of Fresnillo as a long-term investment have changed. I expect management’s cost reduction and productivity initiatives to come through in time, and with improved performance and reliability to see a return of long-term investors, as well as renewed interest from traders.

Fresnillo’s challenges could persist in the near term, and the share price could remain volatile for a while yet. However, I’d be happy to buy a stake today on the view that long-term returns could be very strong from the current level.

Firing on all cylinders

Mid-cap miner Hochschild operates three mines — two in southern Peru and one in southern Argentina — and has a good pipeline of long-term projects throughout the Americas. The company, which is my colleague Ambrose O’Callaghan’s top stock for August, is firing on all cylinders.

Last month’s production report told us: “Hochschild has continued its strong operational performance in the second quarter of 2019, with year-on-year increases at all three of our mines … Consequently we remain firmly on track to meet our annual production and cost targets.”

City analysts expect earnings to soar 80% this year, followed by 40% in 2020. There are dividends too (current-year forecast yield 1.6%). While the shares have risen 30% in just a couple of months, the strong operational performance and forecast rates of earnings growth suggest to me the stock is still undervalued. I’ve long admired the company, and continue to rate the shares a ‘buy’ at their current level.

The post Would I be mad to buy the FTSE 100’s worst-performing stock? appeared first on The Twelfth Magpie.

More reading

• Precious metals are starting to rally again! This FTSE stock could soar
• Here’s how the UK stock market’s quietly profiting from the AI boom
• The market just sold this FTSE 100 stock. I think it’s focusing on the wrong risk
• 2 FTSE 100 and FTSE 250 value stocks to consider right now!
• Hot, hotter, hottest. Is it too late to consider these 3 FTSE 100 shares?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Looking ahead, further falls could be ahead for the stock in the near term. However, its long-term prospects continue to suggest it could deliver high returns.

Of course, it’s not the only FTSE 250-listed mining share which could generate capital growth over the long run. Precious metals miner Hochschild (LSE: HOC) could also provide investors with an appealing risk/reward ratio at the present time.

Low valuation

With the gold price reaching a six-year high, the financial outlook for gold miner Hochschild could be set to improve. Investors are becoming increasingly cautious about the prospects for the world economy, with an escalation of a global trade war leading to increasing demand for defensive assets. With gold being seen as a store of wealth, it would be unsurprising for its price to move higher.

Furthermore, US interest rate rises seem to have come to an end – in the short term at least. There is even the prospect of an interest rate cut, which could increase demand for gold as interest-producing assets may become less appealing on a relative basis.

With Hochschild trading on a price-to-earnings growth (PEG) ratio of just 0.2, it seems to offer a wide margin of safety. Although the prospects for the silver price may be less positive than for gold at the present time, and the company being highly dependent on precious metals prices, its risk/reward ratio could be enticing for long-term investors who can live with above-average volatility.

Long-term potential

As mentioned, the Sirius Minerals share price has endured a tough period in recent months. Due to the uncertainty which still surrounds its project, notably in terms of the potential for further drives to raise funds from investors, its share price could remain volatile in the near term.

However, in the long run, the company continues to offer significant growth potential. Its recent updates have shown that the project is progressing as planned, with several deals signed to supply its POLY4 fertiliser to a variety of markets over the long term. As such, the potential catalysts that could lift its share price over the coming years appear to remain in place.

As with any major project that is still a number of years away from completion, and that requires significant investment in order to reach that point, risks are high. However, for long-term investors who are able to buy the stock as part of a diverse portfolio of shares, Sirius Minerals could offer high rewards if it is able to deliver on its strategy.

Although further falls in its share price cannot be ruled out in the near term even though it trades at its lowest level in over three years, over the long run the company’s appeal relative to other mining stocks could be high.

The post I think the Sirius Minerals share price isn’t the FTSE 250’s only promising investment appeared first on The Twelfth Magpie.

More reading

• 2 FTSE 100 and FTSE 250 value stocks to consider right now!

Peter Stephens 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.

Here, I’ll look at the valuation and prospects of the two companies, and give my view on whether they are prime candidates for investment today.

Value in oil

I’m expecting upbeat first-quarter results from BP tomorrow, following on from its strong performance in 2018. City analysts are currently forecasting high-teens earnings growth this year, and more of the same for 2020.

BP is the third-largest company in the FTSE 100, and, of course, it’s always worth comparing its valuation and prospects with number-one-ranked Shell. The table below shows their price-to-earnings (P/E) ratios, price-to-earnings growth (PEG) ratios, and dividend yields, based on forecasts for 2019 and 2020.

As you can see, aside from on 2019 PEG, Shell has the superior value metrics, with lower P/Es both years, lower 2020 PEG, and higher yields both years.

Having said that, BP’s value credentials are pretty strong in their own right. The P/Es are very reasonable, the PEGs are comfortably to the good value side of the PEG ‘fair value’ marker of 1, and the dividend yields are well above the Footsie average, and only a tad lower than Shell’s.

I wouldn’t want to put anyone off investing in BP, but for me the table confirms why Shell is my sector pick, and why I think it’s still a brilliant buy.

High growth miner

The strong earnings growth forecast for BP and Shell over the next couple of years is eclipsed by that forecast for Hochschild. Analysts are expecting the miner’s earnings to increase 100% this year, followed by 30% in 2020.

Running the same valuation numbers as I did for the oil companies, you can see that Hochschild is a rather different investment proposition.

Clearly, it is not a stock for investors seeking a high income, with its dividend yield being a fraction of the yields on offer at BP and Shell. The miner also has much higher P/E ratings than the oil giants.

Now, a high P/E is not in itself a bad thing. It simply means the market is expecting high earnings growth. A stock with a high P/E can still be undervalued, which is where the PEG ratio is so useful. Hochschild’s PEGs of 0.2 for 2019 and 0.6 for 2020 suggest the P/E is very good value relative to the forecast earnings growth.

One of the things that characterises miners and oil companies, is that it can be many years before you see the wisdom (or foolhardiness) of today’s capital allocation decisions. In this respect, I’m reassured by the fact that current chairman, and major shareholder, Eduardo Hochschild, is the great nephew of Mauricio Hochschild, who founded the company in 1911.

Such family dynasties tend to be masters of planning and allocating capital with a long-term horizon. This, together with the attractive PEG valuation, makes the stock look very buyable to my eye.

The post Are the BP share price and 5.7% dividend yield too good to miss? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

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.

Subdued

Hochschild’s share price was pushing towards 600p in 2011. The price of silver hit a high of over $45 an ounce that year and gold a high of over $1,800 an ounce. Today, we’re looking at prices of nearer $15 and $1,300, respectively. Meanwhile, Hochschild’s shares  are trading at under 200p (a little down on yesterday’s closing price after this morning’s results).

Despite the subdued metals prices, the company posted an underlying profit before tax of $38.4m on revenue of $704.3m. Earnings per share (EPS) came in at $0.05 (3.85p at current exchange rates) and the board declared a dividend for the year of $0.392 (3.01p). At the current share price, the price-to-earnings (P/E) ratio is an eye-watering 51.9, while the dividend yield is a skinny 1.5%.

Growth prospects

The good news is that City analysts are forecasting an 80% rise in EPS this year to $0.09 (6.92p), bringing the forward P/E down to 28.9. This gives an attractive price-to-earnings growth (PEG) ratio of 0.36.

Hochschild is a well-managed business, with a nice portfolio of low-cost-producing assets and significant resources for development. It would take a surge in gold and silver prices for its shares to double in short order, but because of its near- and longer-term growth prospects, I rate the stock a ‘buy’ at the current level.

Unpromising

Climbing to a post-financial crisis high of around 500p in 2015, BT’s shares are currently trading at 233p. In contrast to the high earnings growth forecast at Hochschild, analysts see BT’s EPS stuck in the region of 26p for its three financial years to 31 March 2021. Also, the consensus is for the dividend to be cut to 14.8p by that date, from a current 15.4p. On the face of it, the prospects appear unpromising for investors.

In BT’s favour is a P/E of just nine. And a dividend yield of 6.4%, based on the forecast payout cut. Now you may say the bargain-basement P/E is more than merited, due to the stagnant earnings outlook. And the yield isn’t much compensation, particularly as the payout would likely be lower than the current consensus 14.8p, if the dividend were to be cut. However, even if that proves to be the case, I see BT as an exciting turnaround story.

Transformation prospects

BT’s chairman Jan du Plessis, who has been in the role for little more than 15 months, previously helped steer Rio Tinto through a tumultuous decade. Chief executive Philip Jansen, who took up his post just three weeks ago, was formerly the head of Worldpay. Both are experienced in business transformation, and they have plenty to work with at BT.

I believe the potential for operational improvements, and bolder possibilities, including a partial break-up of the group, could lead to considerable upside for investors. It may take some time, but I rate the stock a ‘buy’ on the view it has scope to smash the return of the FTSE 100.

The post Why I think the BT share price could smash the FTSE 100 appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

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.

Metals prices

The current price of silver is $14.86 an ounce — its lowest level since February 2016. It’s traded above $16 for much of the intervening period, including climbing above $20 in the weeks after the Brexit vote. The price of gold, which Fresnillo and Hochschild also produce, has moved in a similar fashion. It’s currently trading at $1,187 an ounce, compared with several peaks of above $1,350 during the last two years.

I’m keen on gold and gold miners at current levels, but I see particular value in exposure to silver due to the gold-to-silver ratio. This ratio, which is the number of ounces of silver it takes to purchase one ounce of gold, currently stands at 80:1. Historically, 60:1 is more normal, suggesting that silver may be even better value than gold at present.

Bright future

Hochschild released its half-year results today and reported record production during the period. Output of 19.9m silver equivalent ounces (11% ahead of last year’s first-half) puts the company firmly on track to meet its full-year target of 38m silver equivalent ounces. First-half all-in sustaining costs from operations of $11.9 per silver equivalent ounce also position the company to meet its full-year cost target of $13 to $13.4 per silver equivalent ounce.

Analysts are forecasting full-year earnings per share (EPS) to come in at $0.09 (12% up on last year), followed by a 56% increase next year to $0.14 (11p at current exchange rates). At a share price of 166p — 48% below its 52-week high of 317p — Hochschild trades on just over 15 times next year’s forecast earnings.

As well as the prospect of rising production and lower costs in the near term, the company said today that its brownfield exploration programme “has started to generate some exciting results.” A key achievement in the first half was the addition of over 59m silver equivalent ounces of resources. A well-managed business, with a strong balance sheet and a bright future, the current valuation looks highly attractive to my eye, and I rate the stock a ‘buy’.

World number one

Operationally, things haven’t gone quite as smoothly so far this year for the world’s biggest silver miner Fresnillo. Issues associated mainly with less availability of process water at one of its mines saw the company revise its full-year silver production guidance of 67m to 70m ounces down to 64.5m to 67.5m. However, at the same time it increased its gold production guidance from between 870,000 and 900,000 ounces to between 900,000 and 930,000 ounces. The net result in terms of silver equivalent ounces was that overall guidance remained unchanged.

City analysts are expecting EPS this year to be at the same level as last year’s $0.65, before advancing 11% to $0.72 (57p) next year. At a current share price of 920p — 45% below its 52-week high of 1,672p — Fresnillo trades on just over 16 times next year’s forecast earnings. Again, this is a well-run business with a strong balance sheet, and a stock I’d be happy to buy at today’s level.

The post This FTSE 100 stock hasn’t been this cheap for over 2 years appeared first on The Twelfth Magpie.

More reading

• Precious metals are starting to rally again! This FTSE stock could soar
• Here’s how the UK stock market’s quietly profiting from the AI boom
• The market just sold this FTSE 100 stock. I think it’s focusing on the wrong risk
• 2 FTSE 100 and FTSE 250 value stocks to consider right now!
• Hot, hotter, hottest. Is it too late to consider these 3 FTSE 100 shares?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

As a result, the share price of FTSE 100-listed silver and gold miner Fresnillo (LSE: FRES) has declined by 30% since the start of the year, while FTSE 250-listed Centamin (LSE: CEY) and Hochschild (LSE: HOC) have fallen by 27% and 35% respectively. They are therefore the FTSE 350’s worst-performing gold shares of 2018. Looking ahead, is there recovery potential?

Fresnillo: changing production guidance

Of course, the best time to buy any asset is when few other investors want it. That situation could now be present for gold, as it is unpopular and many miners have seen their valuations fall. For example, Fresnillo has a price-to-earnings growth (PEG) ratio of 1.4, with investors having been disappointed with its reduction in silver production guidance for the full year. Although this is being offset by higher than expected gold production, it could mean there is added volatility in the company’s share price in the near term.

Overall, though, the company’s production and financial performance are on track for the full year. With it having invested heavily in new operations which are set to offer increasing production over the medium term, the stock could have strong turnaround potential. Its plans to raise dividends per share by 12% next year could make it more appealing to a wide variety of investors, since it is due to have a dividend yield of 2.4%.

Hochschild: share sales hurt sentiment

Meanwhile, silver and gold miner Hochschild’s PEG ratio is just 0.2. The company’s share price has been hit by aggressive selling from a major shareholder, with this having significantly hurt investor sentiment in recent months. In the near term, the stock could come under further pressure from additional sales, with a falling silver price also hurting its overall outlook.

However, Hochschild is still on track to meet production guidance for the full year. Its cost base remains relatively low, and this could mean it is able to offer impressive growth even during a period of lower precious metals prices. With the company having an asset base which offers a degree of diversity and growth potential over the long run, it could offer a favourable risk/reward ratio relative to its industry peers.

Centamin: production disruption to end?

Centamin’s PEG ratio of 0.7 suggests that it may also be undervalued. It has experienced production disruption in recent months, which has contributed to its share price fall. Indeed, the first half of the financial year has been disappointing for the company, with gold production declining by 25% in the second quarter.

However, it remains on track to meet production guidance for the full year, with the company expecting a significant ramp-up in production in the second half of the year. Although it is reliant upon the Sukari mine, the asset offers significant production potential over the long-term, as well as a relatively stable political outlook. Alongside a dividend yield of 3.8% which is covered 1.6 times by profit, its overall return prospects seem to be high.

Outlook

With the potential for a full-scale trade war between the US and China, investor sentiment could easily come under pressure in future. In such a scenario, gold shares such as Fresnillo, Hochschild and Centamin could become increasingly popular after what has been a disappointing 2018 (so far).

The post The 3 worst gold stocks of 2018 (so far) appeared first on The Twelfth Magpie.

More reading

• Precious metals are starting to rally again! This FTSE stock could soar
• Here’s how the UK stock market’s quietly profiting from the AI boom
• The market just sold this FTSE 100 stock. I think it’s focusing on the wrong risk
• 2 FTSE 100 and FTSE 250 value stocks to consider right now!
• Hot, hotter, hottest. Is it too late to consider these 3 FTSE 100 shares?

Peter Stephens owns shares of Centamin and Fresnillo. The Motley Fool UK has recommended Fresnillo. 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 first, which released impressive annual results this morning, has been in existence for little more than 10 years. It joined the stock market towards the end of 2015 and is listed in the FTSE SmallCap index. The second has a heritage extending over 100 years and is a mid-cap FTSE 250 company. Although very different businesses, I’d be happy to buy a slice of both today.

Good workout

Much as Aldi and Lidl have shaken up the supermarket sector, some no-frills operators are finding strong demand for their offering in the gyms segment of the leisure market. The Gym Group (LSE: GYM), which claims to be the pioneer of low-cost gyms in the UK and the fastest growing operator in the sector, today reported a 24% increase in annual revenue to £91.4m.

Top-line growth was helped by the opening of 21 new gyms and the acquisition of 18 others, which increased the total estate to 128. Growing scale benefitted the bottom line, with the company posting a 32% rise in underlying earnings per share (EPS) to 7.4p. The shares are trading a little lower on the day at 253p, which values the business at £325m, and puts it on a price-to-earnings (P/E) ratio of around 34.

On the face of it, the rating isn’t cheap. However, the company plans to open a further 15 to 20 new gyms this year and will also benefit from the profitability of those sites opened in recent years reaching maturity. As a result, strong EPS growth is forecast to continue, rapidly reducing the P/E — to around 27 this year and 21 next year.

The investment proposition looks highly attractive to me. In the short term, management sees “no material identifiable impacts from Brexit at this time” and reckons the business has “the ability to thrive even if the economy becomes less buoyant.” In the long term, there’s potential to double the size of its estate. Finally, a current modest dividend of 1.2p a share (0.5% yield) has scope for considerable growth in the future.

Rich vein

The share price action of precious metals miners can be volatile, often being an exaggerated version of the prices of the metals themselves. Miners can’t do much about metals prices but can focus on maintaining a strong balance sheet, prudently building their asset base and operational efficiency.

For these reasons, silver miner Hochschild (LSE: HOC) is a company I’ve long admired. And with its share price at sub-200p, compared with a 52-week high of over 330p, I believe now could be a great time to invest in this business.

Record production in 2017 produced a solid rather than exhilarating bottom-line outcome, but EPS growth is set to accelerate rapidly over the next couple of years. City analysts are forecasting $0.11 (7.9p at current exchange rates) this year, followed by $0.17 (12.2p) next year. This gives a P/E of 25, falling to 16, and a price-to-earnings growth (PEG) ratio of 0.3, which is well to the value side of the PEG fair value marker of one. With dividends also set to pick up, giving a prospective yield of 1.2%, rising to 1.6% next year, I see a lot to like about Hochschild at the current share price.

The post 2 bargain growth stocks I’d buy with £2,000 today appeared first on The Twelfth Magpie.

More reading

• 2 stocks to consider buying to tap into a booming £279bn market
• 2 FTSE 100 and FTSE 250 value stocks to consider right now!

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.

However, unloved stocks can offer turnaround potential. They may provide a wide margin of safety which enables an investor to buy low and sell high. With that in mind, here are two stocks that have fallen in the last year but which could prove to be excellent recovery plays.

Improving performance

Reporting full year results on Wednesday was silver and gold miner Hochschild (LSE: HOC). The company’s performance during the year was impressive, with record production helping to drive revenue higher. Sales increased by 5% to $722.6m, with full-year attributable production of 513,598 gold-equivalent ounces exceeding previous guidance.

Costs, though, increased as expected. While in line with guidance, the all-in sustaining cost per silver equivalent ounce was $12.30. This was up from $11.20 in the previous year and meant that earnings per share slipped to $0.08 from $0.09 last year.

Hochschild’s outlook appears to be somewhat uncertain at the present time. It continues to make progress with its strategy and is on track to produce 514,000 attributable gold equivalent ounces in 2018. Its bottom line is due to increase by 36% in the next financial year, which puts it on a price-to-earnings growth (PEG) ratio of just 0.7. However, with investor sentiment towards the silver and gold mining sector being weak, the stock’s price has fallen by 19% in the last year.

This could mean further falls are ahead in the short run. But in the long term, the company appears to be cheap and performing well. As such, it could generate high capital returns.

Total returns

Also disappointing in the last year have been shares in gold and silver miner Fresnillo (LSE: FRES). Its shares are down 11% in that time, with gold price rises being offset by a falling silver price. Still, the company is forecast to post a rise in its earnings of 8% in the current year, followed by growth of 14% next year. This puts it on a PEG ratio of 1.6, which suggests that it offers a wide margin of safety.

Furthermore, the company appears to have significant income potential. It may have a dividend yield of just 1.8% at the present time, but it has scope to rapidly increase shareholder payouts. Dividends are covered 2.2 times by profit and this means that they could increase in line with earnings over the medium term without hurting the financial performance of the business.

Clearly, the outlook for gold and silver prices is uncertain. However, if a bear market does come into being after the recent stock market correction, Fresnillo’s exposure to gold could make it more popular among investors.

The post 2 growth stocks I’d buy and hold for a lifetime appeared first on The Twelfth Magpie.

More reading

• Precious metals are starting to rally again! This FTSE stock could soar
• Here’s how the UK stock market’s quietly profiting from the AI boom
• The market just sold this FTSE 100 stock. I think it’s focusing on the wrong risk
• 2 FTSE 100 and FTSE 250 value stocks to consider right now!
• Hot, hotter, hottest. Is it too late to consider these 3 FTSE 100 shares?

Peter Stephens owns shares in Fresnillo. 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.