Financial fears

Battered banking play Standard Chartered (LSE: STAN) has managed to defy gravity in recent times, the stock galloping higher despite escalating fears over economic cooling in Asia.

Indeed, the firm has gained 20% in value during the past three months, the company’s value surging in lockstep with a strong uptick in commodity prices. One source of revenues troubles at Standard Chartered has been the steady erosion in metals and energy prices. But the Brent benchmark’s surge back towards $50 per barrel has led many to speculate that these troubles may finally be behind the bank

Shares in Standard Chartered leapt yesterday following results that showed the bank swing to profits of $589m during January-March, improving from losses of $4.1bn in the prior quarter.

But Standard Chartered warned that “depressed commodity prices, volatility in Chinese markets, weak emerging market sentiment and concerns around interest rate and other policy actions” continue to circulate, providing plenty of red flags that could significantly hamper the bank’s recovery.

A huge decline in impairments is of course a welcome step in the right direction — these fell to $471m in the first quarter from $1.1bn between October and December. And massive restructuring that will see 15,000 roles slashed during the next few years is also raising hopes of a marked turnaround at the bank.

However, the scale of financial turbulence in Asia may significantly hamper any revenues recovery at Standard Chartered further down the line, particularly as the firm drastically reduces its presence in these growth regions. And of course the chronic supply/demand balances washing across the commodities sector casts a huge shadow over the bank’s turnaround story, too.

The City expects the financial giant to flip from losses of 6.6 US cents per share in 2015 to earnings of 27.9 cents this year. But this figure creates a huge P/E rating of 43.4 times. Considering the numerous challenges Standard Chartered still faces, I believe such a reading is ridiculously high, and reckon that now is the time for savvy investors to cash out.

On shaky ground

Like Standard Chartered, fossil fuel giant Tullow Oil (LSE: TLW) has seen its share price explode despite its dodgy revenues outlook. The firm’s share price has rocketed 66% since the end of January, with Tullow Oil unsurprisingly also fuelled by the impressive recovery in fossil fuel values.

But crude’s ascent has been underpinned by fragile hopes of an output freeze by Russia and the OPEC cartel, speculation that is yet to come to fruition. Meanwhile, global crude inventories continue to tick steadily higher as patchy demand persists.

Tullow Oil saw net debt balloon 30% in 2015 to stand at a colossal $4bn by December, the result of colossal capex costs in a low oil price environment. So while recent oil price rises may provide some respite, Tullow Oil remains on shaky ground in my opinion.  

The number crunchers may expect the oil producer to snap from losses of 113.6 US cents per share in 2015 to earnings of 8.6 cents this year as its TEN project in Ghana comes online. However, I believe a consequent P/E rating of 84.1 times is far too high given Tullow Oil’s muddy earnings outlook, leaving in danger of a harsh share price retracement.

The post Why now is the perfect time to sell Standard Chartered plc & Tullow Oil plc appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Bin the bank

Banking giant Standard Chartered (LSE: STAN) streaked ahead last week, the stock’s value adding 13% between last Monday and Friday.

But I can’t see this bubbly sentiment continuing for much longer. Just today Moody’s cut its rating on Standard Chartered’s long-term debt, explaining that it “expects profitability to remain weak for at least two years.” The agency added that “the operating environment in some of the markets in which [the bank] operates has become more challenging.”

StanChart announced last month that it swung to $1.5bn loss in 2015, the first negative result since the 1980s. And with its key Asian operations fighting the impact of Chinese economic rebalancing, and commodity values in danger of prolonged weakness, I don’t expect the bottom line to flip higher any time soon.

Standard Chartered is currently dealing on an elevated P/E rating of 19 times as brokers predict flatlining earnings. I believe this is far too high given the bank’s dangerous risk profile, and reckon bottom-line forecasts could be set for hefty downgrades.

A fashion star

Fashion giant Burberry (LSE: BRBY) also benefitted from returning investors during the past seven days, the stock rising 9% during the period.

But unlike StanChart, I reckon the brand is a great selection for those seeking roaring long-term returns. Sure, Burberry may be experiencing ongoing weakness in its Hong Kong market, but a return to growth on the Chinese mainland raises hopes of a possible bounceback across Asia.

And the company continues to enjoy sales growth across all of its other major territories — group underlying sales rose 1% between October and December, to £603m.

Burberry is predicted to see earnings suffering a rare dip in the year to March 2016, an anticipated 9% fall resulting in a P/E rating of 19.2 times. But this is expected to prove nothing more than a blip, and with the business investing heavily in its physical and online presence, I expect Burberry’s much-loved togs to keep flying off the shelves.

Oversupply looms large

Oil colossus BP (LSE: BP) enjoyed a 5% bump higher last week thanks to extra advances in the oil price. Brent values advanced 10% during the period and are currently knocking on the door of $40 per barrel.

I’m afraid this bubbly market optimism escapes me, however. Sure, latest Baker Hughes data may have showed US oil rigs hit their lowest level since late 2009, at 392 units. But the industry needs to do much more to get to grips with bloated inventories — US stockpiles have surged to a fresh record of 518m barrels, according to the EIA.

And hopes of an essential output cut from OPEC and Russia could still flounder thanks to the colossal political and economic considerations of such an accord.

Like Standard Chartered, BP is expected to see earnings flatline in 2016, leaving the business dealing on a ridiculously-high P/E rating of 30.3 times. With abundant supply looking set to outpace demand well into the future, I don’t believe the oil price — and consequently BP’s share value — is in a fit state to keep trekking skywards.

The post Can Standard Chartered PLC, BP plc & Burberry Group plc Keep Charging? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.