Today I’m discussing the stock price outlook of three FTSE 100 giants.
A cast-iron sell
Metals and energy colossus BHP Billiton (LSE: BLT) continues to stride higher thanks to recovering commodities prices.
In particular, the London business was helped by a fresh upleg in iron ore values in April, the material supported by signs of a recovery in Chinese steelmaking activity.
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But doubts persist whether this rebound can continue as the country’s construction sector struggles. Indeed, many market commentators feel that iron ore’s heady ascent in 2016 is down to heavy speculative trading rather than improving underlying demand, putting the share price rises of BHP Billiton and its peers under serious scrutiny.
The City has pencilled-in an 89% earnings slide at BHP Billiton for the period to June 2016, leaving the company dealing on a frankly-ridiculous P/E ratio of 87.3 times. I believe this leaves plenty of room for a serious retracement should demand indicators turn lower and supply levels keep swelling.
Digger in danger
The stock price recovery over at Lonmin (LSE: LMI) has shown no signs of cooling in recent weeks, the precious metals play rising by more than 40% in April and visiting levels not seen since autumn 2014.
But like BHP Billiton, I believe a cloudy demand outlook threatens to send shares in the mining giant rattling lower again.
Lonmin may have been propelled higher by surging platinum values, the dual-role metal climbing to nine-month peaks around $1,070 per ounce last week. Yet with the commodity’s sterling rise being thanks to a significant weakening in the US dollar rather than a reflection of a healthy supply/demand balance, Lonmin shares could suffer.
Indeed, concerns surrounding future Chinese off-take continue to persist. And the widening emissions scandal enveloping the automotive sector could have huge ramifications for the diesel engine, and consequently platinum demand, in the coming years.
The City expects Lonmin to endure losses of 16 US cents per share in 2016 as revenues slump. And with the South African producer also battling rising capex costs, I reckon Lonmin is a risk too far at the present time.
A bankable bargain
Banking giant Barclays (LSE: BARC) enjoyed a hefty bump higher during April, a double-digit rise helping the business stem the steady downtrend that kicked off last summer.
That’s not to say that Barclays is in the clear, of course. For one, the firm’s full-year results in March underlined the colossal problems caused by rising financial penalties, Barclays having to cut the dividend through to 2017 to just 3p per share due to escalating PPI-related bills.
Meanwhile, Barclays’ recent decision to significantly reduce its emerging market exposure could have huge ramifications for future revenues growth. And of course the result of June’s European Union referendum could cause serious top-line troubles in its home market.
Still, I believe Barclays remains a solid long-term growth pick. The company’s renewed focus on the robust UK and US economies should deliver strong earnings growth in the coming years, while a more sensible approach at its Investment Bank provides another exciting growth lever.
And with Barclays dealing on a very-decent P/E rating of 12 times for 2016 — in spite of a predicted 12% earnings decline — I reckon the share price could have much further to run.
