Can Q2 winners Sirius Minerals plc (+24%), Tullow Oil plc (+26%) and Centamin plc (+31%) keep surging?

Royston Wild considers whether Sirius Minerals plc (LON: SXX), Tullow Oil plc (LON: TLW) and Centamin plc (LON: CEY) can keep on charging.

| 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.

Although commodity values have cooled more recently, many of the Footsie’s drillers and diggers have punched considerable gains since the start of April thanks to previous price advances.

So as we now enter the latter half of Q2, it’s a good time to assess whether recent risers Sirius Minerals (LSE: SXX), Tullow Oil (LSE: TLW) and Centamin (LSE: CEY) can look forward to further gains in the near term and beyond.

Potash power

Investor appetite for Sirius Minerals has shaken wildly in recent weeks following a spate of operational updates concerning its gigantic North Yorkshire polyhalite project.

The potash play set the market alight in late March after a definitive feasibility study revealed that the asset could have a net present value of $27bn on first production. But Sirius Minerals’ share price nosedived once investors digested news that $3.56bn would be needed to get the project up-and-running.

The stock has resumed its uptrend since the start of this quarter however, even though Sirius still has significant milestones to reach on financing. And of course the digger faces the usual risks associated with the business of minerals exploration and production, not to mention the prospect of prolonged weakness in potash values.

While fresh operational and funding updates could fuel further share price advances, the opposite is also true, particularly given the recent breakneck rise. I believe the company carries far too much risk at present.

Crude concerns

Shares in Tullow Oil have moved higher in lockstep with a resurgent crude price. Indeed, the driller stepped skywards again on Monday as the Brent benchmark moved to six-month peaks around $49 per barrel.

However, I reckon the oil market’s poor supply/demand fundamentals fails to support such a heady rise, leaving the likes of Tullow Oil in danger of a sharp correction.

Black gold prices have bumped higher today after Goldman Sachs advised that recent output disruptions have pushed the oil market back into deficit. But the broker expects the supply overhang to recur during the first half of 2017, and also slashed its WTI benchmark forecasts for next year to $52.50 per barrel from $57.50 to reflect this.

Maiden oil at its colossal TEN project in Ghana is expected to blast Tullow back into the black with earnings of 5.1 US cents per share. But I believe a consequent P/E rating of 116.8 times doesn’t reflect the firm’s vast risk profile, and reckon this leaves plenty of space for a significant share price retracement.

Golden opportunity?

Arguably gold producer Centamin has more compelling investment appeal than either Sirius or Tullow.

Gold doesn’t suffer the same supply/demand dynamics looming over other major commodity markets. Meanwhile, wider concerns over the health of the global economy could propel safe-haven buying of gold still higher — the hard currency touched $1,300 per ounce just last week.

But on the downside, the prospect of a resurgent US dollar could put gold values — and with it Centamin’s share price — under fresh pressure. And persistent weakness in Chinese and Indian jewellery and bar demand could put a further spanner in the works.

Centamin is expected to enjoy a 34% earnings upswing in 2016, resulting in a decent ‘paper’ valuation of 13.7 times. But there’s still plenty of mud that could send precious metals prices, and consequently Centamin’s share price, shuttling lower again, in my opinion.

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

Could this be the FTSE 100’s best bargain for 2025?

The FTSE 100 is full of cheap stocks but there’s one in particular that our writer believes has the potential…

Read more »

Investing Articles

No Santa rally? As the UK stock market plunges 3%, I’m hunting for bargains

Global stock markets are in turmoil as Christmas approaches but our writer is keen to grab some bargains while prices…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

BP share price to surge by 70% in 12 months!? How realistic is that forecast?

Brand new analyst forecasts predict that the BP share price could rise considerably next year! Should investors consider buying this…

Read more »

Investing Articles

BT share price to double in 2025!? Here are the most up-to-date forecasts

The BT share price is up more than 40% over the last eight months with some analysts predicting it could…

Read more »

Investing Articles

Rolls-Royce share price to hit 850p!? Here are the latest expert projections

Analysts predict the Rolls-Royce share price could surge by another 50% in the next 12 months as free cash flow…

Read more »

Investing Articles

Will NatWest shares beat the FTSE 100 again in 2025? Here’s what the charts say

NatWest shares have left rivals Lloyds and Barclays in the dust in 2024. Stephen Wright looks at whether the stock's…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could the Lloyds share price crash in 2025?

Lloyds is facing a financial scandal potentially landing the bank with a massive customer compensation bill that could send its…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Which UK shares could be takeover targets in 2025?

UK shares have done well this year, but a lot of the big returns have come from companies being acquired.…

Read more »