Is There Any Way Back For Rolls-Royce Holding plc, Glencore plc Or Anglo American plc?

This Fool considers the recovery potential for Rolls-Royce Holding plc LON: RR), Glencore plc (LON GLEN) or Anglo American plc (LON: AAL)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s no doubt about it, there have been plenty of FTSE 100 casualties this year. Some of the falls in share prices can just be attributed to general market volatility, which seems to have been lurking about since the summer.

However, with some share prices under pressure, investors can identify the cause with a degree of ease, and in the case of blue-chip laggards Rolls-Royce (LSE: RR), Glencore (LSE: GLEN) and Anglo American (LSE: AAL), the problems facing either the business or the sector have been well publicised.

A quick glimpse at the chart tells a painful story, with share prices between 50% and 73% below their 52-week highs.

However, the contrarian in me is always on the lookout for an out-of-favour bargain stock – but is there a bargain to be had here? Let’s take a look…

Digging deep

Mining stocks in general seemed to turn a corner in October with a broad sector recovery, as some fears about a general global slowdown abated, prompting investors to return back to the sector in droves.

The share price recovery, however, seems to have been short-lived, with prices again trending downwards. There was no good news to calm investor concerns on Tuesday, with the disappointing news that Japan had fallen back into recession.

Indeed, it is rather difficult to predict which way the price of commodities will go in the short term or whether there is to be a recovery in the sector as a whole. What does have me interested, however, is the price to tangible book value (PTBV), which is around 0.5  for both Glencore and Anglo American.

Theoretically, PTBV represents the hard assets of the company, i.e. the amount of money that shareholders would receive for each share owned if the company were to liquidate its operations. Some ‘intangible’ assets can have questionable value — for example, a company might have overpaid for an acquisition. Accordingly, conservative value investors sometimes prefer to remove them when valuing a company. So here investors are paying around 50p for every £1 of assets! This makes both companies look very cheap; however, it must be remembered that assets are only worth what buyers are prepared to pay… but it is certainly worthy of some further research, in my view.

The sky’s the limit

It seemed that investors were ill prepared for Warren East’s strategic update, the first two paragraphs of which are below. For me, it is the first paragraph that worried investors the most:

“While 2015 remains broadly as expected, the outlook for 2016 is very challenging. The speed and magnitude of change in some of our markets, which have historically performed well, has been significant and shows how sensitive parts of our business are to market conditions in the short-term. 

“At the same time I remain very confident about the opportunities before us and convinced that our long-term outlook is positive. Our industrial transformation is proceeding well and our core large engine business remains on track to gain significant market share and build a strong, cash generative platform for the future.”

Rather unsurprisingly, the shares bombed to prices not seen since 2010, though they have since recovered from their apparent nadir as bargain hunters swept in to pick up some shares in what is perceived by investors to be a quality operator.

To me, those bargain hunters need to be fairly confident that the outlook is baked into the share price, and with a “very challenging” landscape ahead, I wouldn’t be surprised to see another profit warning in the New Year.

That said, here we have a market leader sporting a new CEO with an excellent track record at ARM Holdings looking to reshape the business into a more aerodynamic and profitable organisation that will be fit enough for the future challenges that are ahead.

Which view to take?

Here we have three blue chips, which on the face of it are trading at either new lows or lows not seen for some years.

They are, however, at these lows for a reason. Accordingly, prospective investors should ensure that they do plenty of research before taking a position against the stock market professionals who may be of an opposing view.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Fancy a 13.9% dividend yield? Consider these dirt-cheap investment trusts!

These investment trusts are trading at whopping discounts to their net asset values (NAVs). Here's why they could prove to…

Read more »

Investing Articles

If the market shut down for 10 years, I’d be happy to hold these 2 FTSE 100 shares

Our writer reveals a pair of FTSE 100 shares that he reckons are well set up to deliver strong returns…

Read more »

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »