Will BP Plc, Tesco Plc & Anglo American Plc Ever Return To Previous Highs?

Will BP Plc (LON: BP), Tesco Plc (LON: TSCO) & Anglo American Plc (LON: AAL) prove value plays or value traps?

| 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.

It’s no surprise, given the $55bn price tag and recent drop in crude prices, that shares of BP (LSE: BP) still trade for 45% less than they did before the Gulf of Mexico oil spill. While charges related to the spill aren’t finished yet, we at least appear to be in the denouement. And crude prices 44% higher than mid-January lows suggest the worst of that crisis may be passing as well.

As BP comes out of the shadow of these twin crises, it’s positioned to perform well in the coming years. The oil spill forced the company to sell high-cost-of-production assets while they still fetched great prices when crude prices were above $100/bbl. The new, slimmer BP is now targeting around $50/bbl as its break-even prices.

However, if crude prices remain at this level for the long term, BP will see little growth and I can’t see share prices returning to their pre-spill peak. The shale revolution in the US has many industry figures reckoning $60/bbl could be a new ceiling on prices, at which point BP will be little more than a great income share.

A strong showing over Christmas and slowing market share loss have caused some Tesco (LSE: TSCO) bulls in the City to start spelling out their case for a turnaround. Although the 1.3% rise in like-for-like sales over the Christmas period was heartening, I still don’t see a way for shares to regain the lustre they once held.

Mountain of woes

Even bullish analysts would have a difficult time describing Tesco as a growth share thanks to continued competition from the traditional grocers, the German low-cost rivals, and online-only outfits such as Ocado and Amazon. And with shares trading at a full 22 times 2017 forecast earnings, it’s hardly a bargain value investment.

Add to these woes a mountain of debt expected to be in the range of £18bn at year-end and the story becomes even worse for the struggling grocer. Unfortunately for Tesco, the grocery industry may have changed forever with the UK success of Aldi and Lidl plus changing customer habits. Unless the company can find a way to claw back market share while simultaneously raising margins, I don’t see a way for share prices to reach their previous levels.

The incredible shrinking shares

Off more than 85% from post-Financial Crisis highs reached in 2011, the struggling miner Anglo American (LSE: AAL) may well be the least likely of the bunch to return to once-commanding heights.

Anglo is seeking to dispose of more than half of its 2013 assets and cut its workforce by over 60%. These moves will make revenues a mere shadow of the numbers posted during the boom years, but they’re necessary to rein-in sky-high costs and ballooning debt. Net debt at the end of 2015 was $12.9bn, and only stayed flat during the year due to $1.7bn worth of asset sales.

If prices of major commodities stay low for the foreseeable future, which appears likely as demand is stagnant and supply not falling fast enough, Anglo American will continue shrinking. With revenue continuing to decrease thanks to low prices and fewer assets, I don’t see a way for the shares to rebound from their current £5 price tag to 2011 highs of over £34 per share.

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.

Ian Pierce 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

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

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

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »