Shares in Randgold Resources (LSE: RRS) have soared by 55% since the turn of the year as the price of gold has made major gains. That’s because of uncertainty surrounding the future of the global economy, with gold being seen as a store of wealth and a relatively low-risk asset during a volatile period.
Gold has also risen in price due to a slower-than-expected rise in US interest rates. At the end of 2015, multiple rate rises were due this year, but the market is now pricing-in a much more dovish Federal Reserve. And with gold having historically been negatively correlated to interest rate changes, a lower-than-expected interest rate is good news for investors in Randgold Resources.
Looking ahead, Randgold Resources could continue to beat the FTSE 100. It’s forecast to increase its bottom line by 13% this year and by a further 26% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.2, which indicates that considerable capital gain potential is very much on the cards.
Overcoming challenges
Also offering the prospect of FTSE 100-beating performance is Amec Foster Wheeler (LSE: AMFW). Although the resources support services company is experiencing a highly challenging period at the present time as investment spending across the resources sector is slashed, investor sentiment towards the stock is improving. Evidence of this can be seen in Amec Foster Wheeler’s share price gain of 16% since the turn of the year, even though it today reported a pre-tax loss of £235m for the 2015 financial year.
That loss, however, was in line with the company’s guidance and while dividends have been slashed to 29p per share from 43p per share last year, Amec Foster Wheeler’s adjusted performance shows that it remains a high quality business. The adjusted numbers remove non-cash charges such as the £308m impairment charge booked in 2015. While Amec Foster Wheeler is forecast to record a fall in adjusted earnings of 16% this year, its performance next year is expected to improve.
In fact, Amec Foster Wheeler is set to record earnings growth of 7% in 2017, which puts it on a price-to-earnings growth (PEG) ratio of just 1.2. With there being the potential for further rises in the prices of oil and other commodities moving forward, now could be a prudent time to buy a slice of the company due to its potential to beat the FTSE 100 over the medium-to-long term.
Brighter future
Meanwhile, BHP Billiton (LSE: BLT) is also up by 13% year-to-date and the diversified resources play seems to have significant long-term potential to deliver further capital gains. Certainly, in the short run its shares are likely to be highly volatile, but with a strong balance sheet and excellent cash flow, BHP appears to be well-placed to emerge from the current commodity crisis in a stronger position relative to its peers.
With BHP expected to more-than-double its earnings in the next financial year, its PEG ratio of 0.3 holds huge appeal. Clearly, forecasts are subject to change but with BHP having such a wide margin of safety as well as a diversified business that operates in relatively low-risk regions of the world, its long-term future appears to be very bright.
