Today I am looking at the investment prospects of three stock-market stragglers.
Vedanta Resources
Shares in Vedanta Resources (LSE: VED) received another hefty whack last week, the business having fallen an extra 13% during the period. The metals and energy play has conceded 55% of its value in the past 12 months alone, and I believe more weakness can be expected amid worsening supply/demand balances across commodity markets — indeed, Brent oil is tracking back towards six-year troughs and was recently around $47 per barrel in Monday business.
Accordingly, Vedanta Resources is expected to see losses widen from 14.2 US cents per share in the 12 months to March 2015 to 27.3 cents in 2016. And I do not believe the situation will improve any time soon. Like much of the sector, Vedanta Resources remains determined to keep swamping the market with excess material, and the firm’s zinc, copper and aluminium output kept chugging higher in April-June. I reckon the resources giant carries boatloads of risk with the likelihood of very little reward.
Shire
Like Vedanta Resources, pharma play Shire (LSE: SHP) also endured a week to forget and conceded 1% in the last five-day trading period. But unlike Vedanta, I reckon the business provides plenty of upside for savvy investors thanks to a combination of Shire’s brilliant product pipeline and the massive potential of galloping global healthcare demand.
Investors should also take heart from news that a US appeals court upheld the patents on Shire’s earnings-driving Vyvanse drug late on Thursday. The news means that the Dublin firm will avoid generic competition on this particular label until 2023 at the earliest. Massive R&D investment helped to deliver a double-digit underlying revenue advance in January-June, and the City expects this solid trend to continue, pushing a 34% earnings slip this year to a 16% rise in 2016. Consequently Shire’s P/E multiple of 19.3 times for 2015 falls to just 16.7 times for the next period.
Johnson Matthey
Thanks to the turbulence caused by the Volkswagen emissions-rigging scandal, precious metals refiner Johnson Matthey (LSE: JMAT) was on the wrong end of a bruising during Monday-Friday and shares conceded 1% in the mini-period. The business had an end-of-week flurry to thank for just a mild downtick, although investor sentiment remains patchy as the German car giant’s fake test results have cast doubts on the future of the diesel engine.
Johnson Matthey is a major producer of catalytic converters for use in petrol, hybrid and diesel vehicles. But the latter is by some distance the most profitable sub-sector for the London-based business, meaning any adverse-legislation could put a huge dent in future revenues. Johnson Matthey is expected to enjoy earnings rises of 1% and 7% for the years ending March 2016 and 2017 respectively, leaving attractive P/E ratios of 13.9 times and 13.1 times. But shares prices could shunt still lower should sales projections come under fresh pressure.
Smiths Group
Shares in engineering leviathan Smiths Group (LSE: VED) also suffered adverse movements last week and the stock fell 6% in the period. The company dropped to its cheapest for more than three-years in the process, not helped by broker downgrades following its latest results — total revenues slipped 2% during the year to July 2015, to £2.9bn.
Smiths Group noted that “we expect global energy markets to remain challenging for the coming year, with depressed oil prices and significant market uncertainty,” a situation that would likely prove perilous for the top-line. With US hedge fund activist ValueAct’s mass share purchase last month also fuelling speculation over a possible breaking-up of the company, great uncertainty is likely to continue to swirl around the firm, a potentially-catastrophic situation for the share price.
