Here are the three stocks that gave the most pain to their holders over the last 10 years. 

Wealth killer

Considering the sea change in the fortunes of many high street retailers over the last decade, it is not surprising that two of them make the cut.

In bronze medal position is baby goods seller Mothercare (LSE: MTC). According to Refinitiv, shares in the battered firm lost almost 96% of their value over the last decade, with a compound annual growth rate of -27.23%. 

Mothercare’s demise is a cautionary tale on the importance of moving with the times, at least as far as UK trading is concerned. While factors such as rising wages and expensive rents clearly played a role, it was the company’s inability to offer shoppers something distinct in terms of quality, price, or convenience that proved to be the final nail in its coffin.  

With no sign that the onslaught from online-only operators is going to slow anytime soon, I think we can be fairly sure that Mothercare won’t be the last once-mighty name to fold.

Money pit

The fact that a commodity-focused firm makes the list is another non-surprise. Weak prices led the Basic Materials sector to perform particularly poorly over the last decade with an annualised growth rate of just 3.1%.

Occupying second spot on our list of stinkers is Russian gold miner Petropavlovsk (LSE: POG). Its shares fell a little more than 96% over the period, with a compound annual growth rate of -27.68%.

That’s not to say that the company is done for. Despite its valuation tumbling over the years, Petropavlovsk remains a sizeable business with a market capitalisation of a little over £400m. What’s more, holders enjoyed a steller 2019 with shares almost doubling in value. 

With the gold price continuing to rise on concerns over the health of the global economy, it’s possible to imagine this stock could still make money for those brave (or reckless) enough to buy it. Just don’t expect a comfortable ride. 

And the winner is….

Mothercare and Petropavlovsk have been awful stocks to own since 2010. There is, however, one UK-listed firm that’s fared even worse. 

Top spot among the worst shares over the last decade goes to floor covering supplier Carpetright (LSE: CPR). The value of the company fell 99% over the last decade with a compound annual growth rate of almost -40%.

Like Mothercare, the firm’s value was destroyed by a challenging consumer market and crippling finances. It agreed to be purchased for a paltry £15.2m by its largest shareholder (Meditor) last November. At the time, the Purfleet-based business owed around £56m and said that it needed £80m if it was to return to growth. 

The fact that the stock traded around the 800p mark in 2010 and sold for just 5p per share a decade later shows just how brutal a game investing can sometimes be. It also provides Fools with a reminder of the importance of exiting a losing position as early as possible if the investment case changes. 

The post Stand back! Here are the WORST performing UK stocks over the last decade 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.

Today, I want to look at two of the best-known UK-listed gold miners, FTSE 250 firm Polymetal International (LSE: POLY) and its smaller rival Petropavlovsk (LSE: POG).

A hidden bargain?

Russia-based Petropavlovsk trades at a tempting 40% discount to its net asset value of around 14p per share. But the company has experienced a turbulent few years. Problems have included a debt crisis in 2015 and boardroom coups in 2017 and 2018.

Founder Dr Pavel Maslovskiy is now in charge of the firm again and appears to have taken steps to improve performance. Figures released today show the company’s total cash costs fell from $899/oz during the first half of the year to just $650/oz in H2.

As a result, the group’s financial performance improved considerably during the period and Petropavlovsk generated a pre-tax profit of $82.4m last year, compared to $48.9m in 2017.

More importantly, net cash generated by the group’s operating activities rose from $124m in 2017 to $217m in 2018. Is this troubled business finally on the road to recovery?

I’m not so sure

Petropavlovsk’s share price fell when markets opened today. I can see why. The firm’s latest guidance suggests the cost reductions seen during the second half of last year won’t be sustainable. Total cash costs are expected to rise to $850-$950/oz in 2019, compared to $786/oz in 2018.

A second concern is that the firm’s true operating costs may be higher. When looking at miners’ costs, I prefer to use the industry-standard measure of all-in sustaining costs. This takes a broader view of the spending needed to maintain production. It includes capital expenditure on existing mines and administration costs, for example.

Petropavlovsk’s all-in sustaining costs rose from $963/oz to $1,117/oz last year. The firm hasn’t provided guidance for 2019 but, based on the expected rise in cash costs, I’d expect the all-in figure to rise further.

That could be a problem. Based on the current gold price of $1,267 per ounce, I feel Petropavlovsk could struggle to make a sustainable profit in 2019. In my view, these shares are cheap for a reason. I’d avoid them.

My top gold buy

My top pick among UK-listed gold miners is Polymetal International. This much larger FTSE 250 firm enjoys significantly lower costs and more stable profits than Petropavlovsk.

Polymetal’s total cash costs for 2019 are expected to range $600-$650/oz., while all-in sustaining costs are expected to be $800-$850/oz. These figures leave plenty of room for profit on a gold price of about $1260/oz.

I believe shareholders should continue to enjoy attractive returns from this business, which generates plenty of cash. Underlying earnings are expected to rise by 9% this year, while City analysts have pencilled in a 14% increase to the dividend.

These projections value Polymetal shares on 10 times forecast earnings, with a dividend yield of 5.3%. In my view, that’s decent value for a company with a solid track record of delivery. I rate the shares as a buy.

The post Why I’d snap up this FTSE 250 dividend growth stock after recent news appeared first on The Twelfth Magpie.

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Roland Head 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.

Despite this, long-term growth potential of the business could improve. Its international growth prospects remains high, while online shopping could boost its parcel operations. Alongside another lowly-rated share, which released an update on Friday, it could provide improving performance in future.

Turnaround potential

The company in question is gold miner Petropavlovsk (LSE: POG). It reported total gold production of 102,000 oz in the third quarter, which compares to production of 104,000 oz in the same quarter of the previous year. Encouragingly, the company’s development and commissioning of the POX Hub has continued to progress, while it’s set to produce between 420,000 oz and 450,000 oz for the full year.

The company has experienced an uncertain period, with operational challenges and changes to management having disrupted its overall performance. Alongside this, the gold price has come under pressure in recent months as a result of increasing US interest rates and a generally positive outlook for the world economy.

As such, the Petropavlovsk share price has fallen by around 18% so far this year. This puts it on a forward price-to-earnings (P/E) ratio of around 6, which suggests that it may offer a margin of safety. While potentially risky, challenges facing the world economy could lead to increased demand for gold. As a result, it could offer improving performance in the long run, albeit with high levels of volatility.

Turnaround potential

One reason for the decline in the Royal Mail share price in recent months has been the continued difficulties it faces in its letters division. Its cost avoidance and efficiency strategies are not working as well as expected, and the challenges it faces from falling demand for letters looks set to continue.

This, though, may be offset by rising demand for parcel delivery. The popularity of online shopping is set to increase, and the company could therefore be in a strong position to capitalise on this. It’s also generating strong growth from its international segment, GLS. Further investment in GLS is set to be provided, and this could be used to make further acquisitions and enhance its position in what seems to be a number of growing markets across the world.

With the Royal Mail share price now having a P/E ratio of around 9, it seems to offer a wide margin of safety. Although further falls in its market value cannot be ruled out, in the long run it has the potential to generate improving financial performance. Given that unpopular shares can provide more appealing risk/reward ratios for the long term, the present time could prove to be a worthwhile buying opportunity for less risk-averse investors.

The post Why I think Royal Mail is a top FTSE 100 dividend stock that could bounce back appeared first on The Twelfth Magpie.

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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.

I’m with him on that, and I was surprised to see Hays shares crashing by 13% in early trading Thursday after a first-quarter update.

And that’s despite the company reporting an overall growth in net fees of 9% — which includes the fact that “17 countries exceeded 10% net fee growth, with 10 all-time records.” I’m particularly impressed by a 13% rise in net fees from Germany, and Australia & New Zealand swinging into growth with a 7% rise.

UK weakness

The most notable weakness is here in the UK & Ireland, where net fees grew by only 3%, which is barely above the latest annual inflation rate. That presumably lies behind the day’s sell-off, and it’s surely going to fuel fears that Brexit and the next year or two of potential turmoil in the recruiting industry will weigh heavily on Hays’ profit prospects.

But the UK & Ireland only accounted for 24% of the company’s net fees — Germany is the firm’s biggest single market notching up 27%, so I can’t help feeling that UK-centric worries are overdone.

I also think I’m seeing that typical growth-share reaction, when one quarter comes in a little behind the super-sparkling expectations that investors often take for granted. And that can lead to a sell-off.

Chief executive Alistair Cox said that, despite macroeconomic conditions, “the outlook remains positive across our International markets.”

We’re looking at a forward P/E of around 12.4 now, on current full-year forecasts. Those forecasts might be pared back a little, but this is a cash generative company and I think I’m seeing a buying opportunity.

Big climber

At the other end of the scale on Thursday, struggling Petropavlovsk (LSE: POG) saw its shares leap by 18% at one stage, to 6.1p. But before we get too excited, is it possible we’re just seeing a’dead cat bond’s after September’s first-half update saw the shares heading downwards?

With the firm’s cost of gold production rising, coupled with a 15% drop in production volumes, it swung to an operating loss of $17m from the previous year’s H1 profit of $65m.

Even after Thursday’s recovery, the share price is still down 24% since the start of 2018, and it does seem to have something of an oversold look about it — going on fundamentals, at least. 

Earnings rebound

There’s a loss per share on the analysts’ cards for this year, but they’re expecting to see a rebound back to positive EPS in 2019. That would put the shares on a P/E of only a little over five, which is very low. And production is expected to recover in 2019 as new facilities get going.

But there’s a couple of things that would still keep me away. One is that even if cash costs per ounce do drop to the expected range of $750 to $800, it wouldn’t take much of a fall from today’s gold price of around $1,200 per ounce to eat into those margins. 

I’d also want to see further progress with Petropavlovsk’s turnaround, both financially and in terms of management — the current board hasn’t been in place very long.

The post Is this stock a falling knife to catch after today’s share price crash? appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

But over a five-year period the company is roughly level with the Footsie, with both having delivered gains of about 17%. In Anglo’s case this vanilla performance masks a dramatic slump in 2015, when the global mining market crashed.

The rate at which miners have recovered from this downturn has been impressive. What’s less clear is whether these companies can continue to beat the market.

One key number

City analysts are forecasting a modest decline in profits in both 2018 and 2019. However, my experience is that these forecasts aren’t always that reliable. For example, consensus estimates for Anglo’s 2018 earnings have risen by 45% over the last year. Who knows what will happen over the next 12 months?

When forecasts are unreliable, one alternative approach used by value investors is to consider a company’s past performance over a long period, ideally 10 years.

I’ve dug out Anglo American’s profit numbers for the last 10 years from the firm’s 2017 annual report. These show that since 2008, underlying earnings — analysts’ favoured measure — have averaged $2.67 per share, or around 200p per share.

At the last-seen share price of 1,760p, this puts the stock on a 10-year average price/earnings ratio of just 8.6.

That seems cheap enough to me, especially as it’s paired up with low debt, strong cash flow and a forecast dividend yield of 4.7%. In my view, Anglo American has a good chance of beating the FTSE 100 over the next few years.

Can this small-cap finally win gold?

Russia-based gold miner Petropavlovsk (LSE: POG) has delivered mixed results since its 2015 refinancing.

Today’s half-year results suggest that these difficulties have continued into 2018. Production fell by 15% to 201,400 oz. during the six months to 30 June, cutting group revenue by 11% to $270m.

Lower production and adverse currency factors pushed up the group’s total cash costs up from $675/oz. to $899/oz. As a result, the business slumped to an operating loss of $17m for the half-year period, compared to a profit of $65m last year.

The good news is that the second half of the year is expected to be much better. Total cash costs are expected to fall to $750-$800/oz. for the full year. And gold production is now expected to be between 420,000 oz. and 450,000 oz.

A turning point?

The company should also benefit from more stability in the boardroom. Founders Peter Hambro and Dr Pavel Maslovskiy both lost their jobs in 2017. But Dr Maslovskiy regained the CEO position earlier this year, and the firm announced today that Hambro will now take up a new advisory role.

Looking ahead, production from the delayed POX Hub facility is finally expected to get under way in 2019. This is expected to boost production to 500,000/oz. in 2019. Total cash costs are expected to fall below $700/oz., and profits should rise substantially.

Analysts’ forecasts for 2019 put Petropavlovsk on a forecast P/E of just 5.7. This looks cheap, but I think this is fair considering the risk of further problems. This could be a speculative turnaround buy, but personally I think there are better choices elsewhere in the gold sector.

The post Why the Anglo American share price could outperform the FTSE 100 appeared first on The Twelfth Magpie.

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Roland Head 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.

Investing in stocks is one way you can beat the scrouge of inflation. Commodities can also help immunise your portfolio against price increases as, over the long term, commodity prices tend to increase with inflation. Mining stocks offer the best of both worlds. 

Inflation protection 

Global mining group Anglo American (LSE: AAL) is an excellent example of a miner that can protect your portfolio from inflation.

Over the past few years, the company has been restructuring operations involving a debt binge. However, today the company is better positioned than it has been for a long time.

Net debt had fallen to just $4.2bn at the end of 2017, compared to $11.8bn at the end of 2014. Thanks to rising commodity prices, earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 45% to $8.8bn in the 12 months to December 2017. 

Going forward, analysts are expecting the group to remain in a holding pattern. EPS is unlikely to grow over the next two years, according to analysts.

Still, I believe Anglo’s $6bn in free cash flow (based on 2017’s numbers) will continue to support the 4.7% dividend yield (costing around $1bn per annum) and allow the group to reduce debt still further. This healthy cash generation also leaves plenty of scope for special dividend payouts.

To help prepare the company for the future, Anglo announced this morning that its subsidiary had committed $100m to two venture capital funds. These have been established to invest in companies that “support the development of innovative and competitive technological uses of platinum group metals,” one of Anglo’s main products.

With cash flowing and dividend growth on the horizon, shares in Anglo look to me to be a steal today, as they’re trading at only 8.5 times forward earnings. 

Value investment

Gold miner Petropavlovsk (LSE: POG) is another investment that could protect your portfolio from inflation. But this Russia-focused gold miner is not for the faint-hearted. At the end of June, shareholders voted to change the board for a second time in a year, bringing back co-founder Paval Maslovskiy and former directors Roderic Lyne and Robert Jenkins. 

The vote to replace the former management was instigated by two mystery vehicles, CABS and Slevin, which own just under 10% of the group. The owners behind these enterprises believe Maslovskiy is the right man to take the company forward and improve relations with workers. 

Management turmoil is never a good thing for companies and, usually, I’d stay away. But in the case of Petropavlovsk, the company’s discount valuation and gold mining expertise excites me. 

The firm is building a new plant that will allow it to process more gold. Analysts believe that this new facility will help the group achieve EPS of $0.03 for 2019, up from $0.01 for 2017. Based on these estimates, the stock is trading at a forward P/E of 4.3 and trading at a price-to-book value of just 0.6. In my opinion, the margin of safety offered by this discount valuation more than makes up for Petropavlovsk’s uncertain outlook. 

The post Protect your portfolio against inflation with this FTSE 100 dividend stock appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

Part of the reason for this could be aggressive tax cuts and higher spending plans in the US, while continued loose monetary policy across the globe may push inflation up further.

In such a scenario, gold stocks could be a good place to invest. Historically, they have helped to protect investors against higher inflation. With that in mind, here are two gold miners that could be worth buying today.

Improving performance

Reporting on Wednesday was Russia-focused gold miner Petropavlovsk (LSE: POG). The company’s 2017 results showed that gold sales moved 10% higher, while the average realised gold price was up 3% to $1,262/oz.

Together, these factors helped to push the company’s revenue 9% higher, while its underlying EBITDA (earnings before interest, tax, depreciation and amortisation) was in line with 2016 levels. This was largely due to total cash costs increasing by 12%, which in turn were caused by unfavourable currency effects and lower processing recoveries and grades.

Looking ahead, Petropavlovsk is expected to report a rise in its bottom line of 56% in the current year. This puts the stock on a price-to-earnings growth (PEG) ratio of just 0.1, which shows that it could offer high growth at a reasonable price.

Certainly, the company may lack the diversification of some of its mining sector peers. But with the gold price having the potential to rise in future years and the company continuing to offer operational improvements, it could prove to be a sound buy.

Income appeal

As well as offering the prospect of improving performance should the rate of inflation increase, gold miner Randgold Resources (LSE: RRS) also has strong income potential. The company has been able to build a robust balance sheet which contains no debt and sufficient cash to deliver on its exploration goals over the medium term. As such, it can afford to pay an increasing proportion of earnings as a dividend without hurting its financial standing.

For example, in the current year it is expected to yield 4%. Next year, dividends per share are due to rise by 21%. This puts it on a forward dividend yield of 4.8%, which is likely to remain significantly above inflation over the coming years.

Since Randgold Resources’ profitability may benefit from a higher gold price, its bottom line could increase at a fast pace. Given that it trades on a PEG ratio of 1, it appears to offer a solid growth outlook. And for investors who are concerned about the effects of inflation, it could prove to be the perfect stock to buy for the long run.

The post 2 cheap growth stocks I’d buy and hold forever appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Randgold Resources Ltd. 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.

Shares rise on merger fail

On paper, the proposed merger between Vietnam-focused oil and gas producer SOCO International (LSE: SIA) and Middle Eastern group Kuwait Energy had some logic. The combined firm would have had much higher production, substantial reserves and a geographically diverse portfolio.

However, the two companies couldn’t agree on terms and issued statements today confirming that the deal won’t go ahead.

SOCO shares rose by 2% in early trading as investors welcomed the clarity provided by this announcement. This stock has fallen by about 40% over the last year, even as the oil market recovered. I believe this could be a buying opportunity.

Too cheap to ignore?

SOCO’s most recent accounts show net cash of $132m and a book value per share of about 180p per share. However, I calculate that the company’s January decision to writedown the value of two non-core assets in Africa by $220m will have reduced this to about 133p per share.

At a last-seen price of 94p, it means the shares currently trade at a discount of around 29% to my estimated book value.

Supporting this value is the group’s strong cash flow. With operating costs averaging just $14 per barrel, today’s oil price of more than $60 should leave plenty of cash for development work and dividends.

Shareholders are expected to receive a total payout of 5.3p per share for 2017, giving a yield of 5.6%. A smaller payout is expected in 2018, but SOCO does have a long history of returning cash to shareholders. I believe the stock could be good value at current levels.

Will shareholders strike gold?

Russia-focused gold mining group Petropavlovsk (LSE: POG) has had a turbulent history. Its shares have lost 98% of their value since 2010 and the firm only just survived in 2015, when a big rights issue was required to help refinance $1bn of debt.

Shareholders have grown tired of the firm’s limited progress and the last year has seen the enforced departure of company chairman and founder Peter Hambro and his long-time ally, CEO Dr Pavel Maslovskiy.

A turning point?

Debt has remained stubbornly high and the group’s decision to invest in a so-called POX Hub — a specialist plant needed to extract gold from some types of ore — isn’t without risk.

However, progress is being made. Most remaining debt has now been refinanced on a more sustainable basis. Operationally, the new management team is overseeing a significant improvement in profit and cash generation.

The stock currently trades at a 43% discount to its net asset value of 12.8p per share, and on just 6.6 times 2018 forecast earnings.

If management can successfully release value from the group’s mines and operate the POX hub profitably, then I’d expect the shares to re-rate, perhaps towards the 10p-12p range. This isn’t without risk. But Petropavlovsk shares do appear to offer value at current levels.

The post 2 ‘hidden’ value stocks I’d buy today appeared first on The Twelfth Magpie.

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Roland Head 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.

The television and film giant has swelled 35% in value since then, even hitting its highest for almost two-and-a-half years earlier in January at around 330p per share. Despite this rapid ascent however, it can still be picked up for next to nothing.

Thanks to a forecast 5% earnings rise in the 12 months to March 2018, it trades on a prospective P/E multiple of 14.9 times.

On paper this clearly represents solid value. But considering that City analysts are expecting profits expansion to really light up soon — bottom-line growth of 15% and 12% is estimated for fiscal 2019 and 2020 respectively — this makes the FTSE 250 firm an absolute steal in my opinion.

It’s a family affair

It isn’t difficult to see why the Square Mile is expecting profits to detonate at Entertainment One.

Firstly, the momentum of the London company’s Family division is something to behold — sales here jumped 64% between April and September, to £62.1m.

Its Peppa Pig series has long been the gift that keeps on giving, and there is plenty more left in the tank as the franchise moves into China. The firm aims to treble the number of franchises up and running in the country by the end of the March, to 60.

But the popular porker is no longer the only crowd pleaser to shout about, the company’s PJ Masks series also gaining traction in major territories. Sales here exploded 600% during the first fiscal half to £22.3m thanks to leaping licensing and merchandising revenues. Turnover looks likely to continue booming too as Entertainment One seeks to expand the brand across Europe, Asia and Australasia.

The company’s Television unit is also making tracks. Revenues here rose 17% in the half to £168.5m, thanks to new productions at the now totally-owned Mark Gordon Company, as well as larger international distribution sales for third party productions and content. So there is plenty to get excited over, in my opinion.

A gold-plated bargain

A strong outlook for previous metals prices also leads me to believe that Petropavlovsk (LSE: POG) could prove a terrific pick for growth hunters.

Signals last week from the White House that President Trump favours a weak dollar to boost US trade indicates that currency movements should continue to boost demand for greenback-denominated assets like gold. But aside from these foreign exchange tailwinds, there remain plenty of political and economic levers across the globe that could bolster bullion values in 2018 and beyond.

Meanwhile, Petropavlovsk continues to steadily hike production to latch onto this favourable environment, and in 2017 it produced 439,600 ounces of the yellow metal, up from 400,200 ounces a year earlier. In the current period some 420,000-460,000 ounces is expected, including first production from the company’s flagship POX Hub from September.

So City analysts expect the Russian digger to follow a predicted 26% earnings rise last year with an extra 56% advance in 2018. A subsequent forward P/E ratio of 6 times is too cheap to pass on, in my opinion.

The post Two great stocks on sale I may buy appeared first on The Twelfth Magpie.

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Royston Wild 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, I believe Highland Gold Mining (LSE: HGM) and Petropavlovsk (LSE: POG) could be two turnarounds that are worth the risk. In fact, these two stocks look as if they could become dividend champions in the future. 

All that glisters is not gold

Over the past two years, shares in Highland Gold have staged a dramatic recovery from the lows of 26p at the end of 2014. Today, the shares are trading at 154p and have risen 10% year-to-date. 

Highland has benefitted from both higher gold prices and increased output. Total production for the first nine months of 2017 was 203,552/oz of gold and gold equivalent, up 6.6% from 190,873 in the first nine months of 2016. The average gold price received for the quarter was $1,280/oz, up from around $1,100/oz at the end of 2016. 

City analysts expect this performance to continue for the rest of the year. Earnings per share growth of 47% is projected for the full year, followed by growth of 17% for 2018 based on current gold prices. These growth estimates indicate that the shares are trading at a forward P/E of 9.7, falling to 8.3 for 2018 — a discount to the metals and mining sector median of 10. 

As well as the low valuation, I believe that shares in Highland will support a dividend yield of 6% or more going forward. 

Analysts have pencilled in a dividend yield of 5.4% for this year. The payout will be covered twice by earnings per share. Historically, Highland has distributed 50% of earnings to investors via dividends, assuming this continues for 2018, the firm looks set to distribute 9.4p per share for a yield of 6% according to my figures. 

Mining for a bargain

Highland looks cheap, but Petropavlovsk seems to me to be even more undervalued. 

One of Russia’s leading gold mining companies, Petro has really struggled over the past five years. The company’s shares have lost 98% of their value as the business has lurched from one disaster to another. 

Nevertheless, it now looks as if the firm is back on track. Today the company reported that for the first half, profit increased by 166% to $25m, and net cash generated from operating activities rose 150% to $75m. 

Petro is making good progress on all of its objectives. Costs are falling and cash generation is strong, helping to fund capex and lower debt. Based on City expectations for growth, the shares are trading at a forward P/E of 8.4, falling to 5.7 for 2018. 

And as the company continues to improve its balance sheet, shareholders could be well rewarded. If Petro repeats its first-half cash generation, the group will have churned out $150m in 12 months, giving an operating cash flow yield of more than 40% according to my figures. If management decided to devote just 20% of this balance to investors, the shares would yield around 10%. Not a bad reward for a high-risk turnaround. 

The post 2 bargain turnaround stocks that could support 6%+ dividend yields appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Rupert Hargreaves owns no share 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.