Is It Time To Dump BHP Billiton plc, Tullow Oil PLC And Randgold Resources Limited?

Royston Wild examines the earnings outlooks of BHP Billiton plc (LON: BLT), Tullow Oil PLC (LON: TLW) and Randgold Resources Limited (LON: RRS).

| 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 ‘m looking at the profits potential of three battered commodity giants.

Diversified digger on the defensive

In usual circumstances it could be argued that businesses opearting across multiple markets, like BHP Billiton (LSE: BLT), offer supreme security. That’s because unlike dedicated commodity producers, diversification protects earnings from over-reliance on one or two key segments.

But this can hardly be considered a strength at the current time as all of BHP Billiton’s markets keep on collapsing. Iron ore prices – a sector from which the London firm derives almost 60% of its earnings – dropped to their lowest for a decade this week falling below $38.50 per tonne, according to Goldman Sachs data.

Despite the steady decline in commodity prices, major producers the world over remain hellbent on digging more and more material out of the ground to build market share. Indeed, BHP Billiton’s iron ore production of 61,000 tonnes between July and September represented a 7% rise from the corresponding 2014 quarter.

The same worrying trend is being seen across the copper and energy markets too. These are BHP Billiton’s second and third largest sectors, respectively, and prices of these commodities have struck multi-year lows recently too. I don’t expect earnings at the London firm to stage a meaningful recovery any time soon.

Oil driller poised to plunge

The growth outlook at fossil fuel specialist Tullow Oil (LSE: TLW) received a fresh bodyblow this week when Brent prices finally gave up the fight and sank below the psychologically-critical $40 per barrel marker.

Commodities of all classes have been struck by fresh waves of bearish data from China – the latest trade data showed exports slumping 3.7% on a yuan-denominated basis during November. And expectations of more disappointing numbers in the coming months, combined with worrying production signals from OPEC, the US and Russia, threaten to push prices further south.

Such a scenario would naturally prove disastrous for Tullow Oil, especially as its capital-heavy development of its Africa assets drove net debt to a mind-blowing $4.2bn as of last month. As crude continues to sink, the London firm’s situation is becoming ever-more precarious as we head into 2016.

Fool’s gold

While gold prices have remained more stable compared to those of most commodities, I believe the earnings outlook at Randgold Resources (LSE: RRS) is also on shaky ground.

Multiple factors are working against it. First there’s an environment of low global inflation, exacerbated by a collapsing crude price. Then there’s the effect of a steadily-strengthening US dollar. And weak physical demand from the key Chinese and Indian markets also looks certain to keep the lid on gold prices looking into next year. Indeed, the yellow metal tipped to its cheapest since 2009 last week, at $1,050 per ounce.

Randgold Resources saw gold sales declining 9.6% year-on-year in the July-to-September quarter to hit £340.7m. And while the company remains debt-free at the present time, in my opinion the likelihood of low metal prices in 2016 and potentially beyond casts a long shadow over its investment appeal.

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 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.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »