Should You Dive Into Anglo American plc, Game Digital PLC & Lamprell Plc Today?

Royston Wild considers whether Anglo American plc (LON: AAL), Game Digital PLC (LON: GMD) and Lamprell Plc (LON: LAM) are attractive stock selections.

| 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 running the rule over three FTSE-quoted fallers.

Game over?

Another financial update, another opportunity for video game emporium Game Digital (LSE: GMD) to disappoint the market.

The retailer was recently dealing 11% lower on Wednesday after advising that revenues slipped 6.3% during August-September, a result that prompted pre-tax profits to collapse 32.2% to £22.5m. As a consequence Game Digital slashed the interim dividend by more than three-quarters, to 1.67p per share.

Game Digital has seen its share value slump 45% since the time of December’s profit warning, and it’s difficult to see the company recovering any time soon as it battles fierce competition and the structural decline in console demand.

The City expects Game Digital to record a 52% earnings decline in the year to July 2017, resulting in a P/E rating of 14.7 times. I reckon this is far too high given the firm’s high risk profile, while I expect fresh earnings downgrades to materialise in the near future.

Sales slumping

Like Game Digital, I believe oil services provider Lamprell (LSE: LAM) is also a poor choice for shrewd investors, because of to its equally perilous revenues outlook.

The rig-builder advised on Wednesday that “challenging market environment [are] expected to affect the industry throughout 2016,” adding that revenues are expected to slip 5% from current levels. The market responded by sending shares in the business 4% lower from Tuesday’s close.

Lamprell saw the top-line erode by a fifth in 2015, it noted, a result that sent post-tax profit hurtling 29% lower to £67m.

Much has been made of Brent crude’s 50% rise from January’s multi-year troughs below $28 per barrel. But with Chinese economic cooling intensifying, and the market still desperately awaiting co-ordinated output cuts, I believe a swift reversal is more than possible.

The City expects Lamprell to chalk up a 14% bottom-line slide in 2016, resulting in a P/E rating of 9 times. Sure, this figure is attractive on paper, but I believe the strong possibility of further colossal capex cuts across the oil industry still makes Lamprell a risk too far.

Commodities concern

A poor outlook for commodities markets also makes Anglo American (LSE: AAL) an unattractive share bet, in my opinion.

A bouncing iron ore price — by some distance Anglo American’s most important market — has helped the diversified miner surge back above the 550p marker this month from January’s troughs around 220p per share.

But a 3% stock price decline in Wednesday trading underlines the fear creeping back into the commodities sector, and I reckon shares in Anglo American have much further to fall as supply/demand balances worsen across key markets.

The number crunchers expect Anglo American to suffer a fifth straight earnings decline in 2016, a projected 51% fall leaving the business dealing on a massive P/E rating of 31 times. This is far too high given the company’s massive risk profile, and I expect a heavy retracement to set in sooner rather than later.

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

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »