Should You Buy Tesco PLC & Kenmare Resources plc On Tuesday?

Royston Wild runs the rule over Tuesday risers Tesco PLC (LON: TSCO) and Kenmare Resources plc (LON: KMR).

| 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.

Today I am looking at the investment prospects of two of the FTSE’s Tuesday risers.

Metals play still on shaky ground

Titanium producer Kenmare Resources (LSE: KMR) continues to defy the washout being endured across the commodities sector in Tuesday trade, the business adding an extra 3.5% to yesterday’s 33% share price advance.

Trader appetite has received a shot in the arm following news on Monday that SGRF — a sovereign wealth fund of the Sultanate of Oman — would pump $100m into the fossil fuel play provided it can raise an additional $75m through a fresh share placing. On top of this, Kenmare Resources is also talking with lenders over swapping some of its existing debt for equity, it advised.

The financing deal follows news that Kenmare Resources — whose flagship asset is the Moma mine in Mozambique — had rebuffed yet another advance from Iluka Resources. The Australian resources play was left disappointed for a third time after Prudential, which holds a 20% stake in Kenmare Resources, refused to endorse November’s takeover bid.

With titanium mineral prices still tanking as oversupply bites, it comes as little surprise that the City expects Kenmare Resources to remain in the red in 2015. Losses of 2 US cents per share are currently forecasts, a projection which, if realised, will represent a third consecutive negative result.

And as economic data from China continues to disappoint — exports slumped 3.7% in November, the fifth successive monthly slip — and Kenmare Resources’ plans to repair its battered balance sheet is yet to be signed off, I believe that the business remains a gamble too far.

Well past its sell-by date

While the commodities sector has taken the brunt of losses in Tuesday trading, Britain’s biggest grocer Tesco (LSE: TSCO) has quietly gone about its business and shares were last 2% higher from Monday’s close.

But I for one still wouldn’t consider investing my hard-earned cash into the firm given the terrible top-line outlook, and I believe the firm has further ground to concede. Indeed, insipid investor appetite pushed shares in the business to fresh decade-and-a-half troughs earlier this week.

Broker Morgan Stanley was the latest to take its red pen to the stock on Monday, citing strong competition in the UK supermarket sector and a stalling restructuring strategy.

And news that transformation director Jill Easterbook is leaving the company has added an additional level of intrigue, the company veteran departing as Tesco’s battle against the country’s discount and premium chains continues to flounder.

Tesco currently deals on an ultra-high P/E multiple of 34.4 times for the year to February 2016, prompted by an anticipated 40% earnings decline. Given the retailer’s persistent failure to pull itself out of the doldrums, I believe the risks continue to far outweigh potential rewards.

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.

Royston Wild 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

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »

Investing Articles

Could I use a stock market crash to turn £20k into half a mil in just over a decade?

A stock market crash might sound terrifying to some but it can also present a once-in-a-lifetime opportunity to accumulate generational…

Read more »

Investing Articles

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »