Do BHP Billiton plc, Premier Oil plc & Standard Chartered plc offer hidden value?

Is now the time to invest in BHP Billiton plc (LON:BLT), Premier Oil plc (LON:PMO) and Standard Chartered plc (LON:STAN)?

| 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.

Shares of mining giant BHP Billiton (LSE: BLT) are worth 30% more than they were in January, but 40% less than they were one year ago.

The firm’s shares trade on a 2016 forecast P/E of 47, but a trailing P/E for 2015 of just 6.6! These numbers show how hard it is to value a cyclical business using just one year’s earnings. So, are BHP shares cheap or expensive?

One ratio which can be useful in these situations is the PE10. This is the current share price divided by average earnings from the last ten years. A low PE10 suggests earnings are below historic averages, and are likely to rise. A high PE10 suggests a stock may be overpriced.

Should you invest £1,000 in Ssp Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ssp Group made the list?

See the 6 stocks

A mining bargain?

I’ve calculated a PE10 of 5.2 for BHP. Although this figure may still be flattered by the long boom in demand from China, I think it suggests that BHP is now at a fairly low point in the cycle. I believe BHP’s profits are likely to rise significantly from here.

City brokers are also turning positive on BHP. Earnings per share forecasts for the year ending 30 June have risen by 26% to $0.24 over the last three months. This figure is expected to double next year. Current forecasts suggesting BHP will generate earnings of $0.47 per share in 2016/17.

These earnings are expected to help support a dividend payment of $0.32 per share, giving a forecast yield of 2.8%. In my view, it’s not too late to invest in BHP’s recovery.

Debt risks change picture

At first glance, oil and gas firm Premier Oil (LSE: PMO) offers a similar opportunity. My calculations suggest Premier Oil currently trades on a PE10 of just 3. However, I believe this figure could be misleading.

Premier Oil currently has net debt of $2.68bn. This dwarfs the firm’s market cap of just £355m. When you factor Premier Oil’s debt into its valuation, the firm’s shares trade on a debt-adjusted PE10 of 19.5.

A more serious concern is that Premier Oil has already had to renegotiate the terms of its loans twice with its lenders. The group is due to start making repayments in late 2017. Any further problems could result in Premier Oil being forced to raise fresh cash from shareholders.

In my view, the risks associated with Premier’s debt make the stock a ‘sell’.

Outlook may soon improve

Most investors agree that the outlook for Asia-focused bank Standard Chartered (LSE: STAN) is uncertain. Based on historical earnings, Standard Chartered shares do look quite cheap. My calculations suggest that the shares currently trade on a PE10 of just 4.6.

What’s less clear is whether Standard Chartered will be able to return to historical levels of profitability. Low interest rates have crushed returns in the banking sector. Standard Chartered’s profits are also being weakened by relatively high levels of bad debt among its customers.

On the other hand, tougher regulation means that UK-based banks do have stronger balance sheets than before the financial crisis. A more conservative approach is being taken towards possible losses from bad debts. So far, Standard Chartered’s loan impairment rates have been in line with the bank’s forecasts.

City analysts expect 2016 to be the low point for Standard Chartered. In my view, these shares could soon be a contrarian buy.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Roland Head owns shares of BHP Billiton and Standard Chartered. 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

Electric cars charging in station
Investing Articles

Looking at Tesla stock? Consider this Warren Buffett-held EV rival instead

Tesla stock is one of the most popular investments in the UK right now. However, Edward Sheldon sees more appeal…

Read more »

Investing Articles

Up 18% in the past week, I think this FTSE 100 share could keep soaring!

While the FTSE 100's up 5.6% in the past week, this blue-chip share's risen much more sharply. Can it move…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

2 top growth stocks to consider buying for the next phase of the AI revolution

The artificial intelligence (AI) revolution is advancing rapidly on the application side, setting up these two growth stocks for more…

Read more »

Growth Shares

Will the Lloyds share price be a winner or loser from the tariffs turmoil?

Jon Smith explains both sides of the argument when trying to figure out if the Lloyds share price will move…

Read more »

Investing For Beginners

Aston Martin: is there a real risk the FTSE company goes bust?

Jon Smith notes the struggles over the past few years of an iconic car brand, but explains why his head…

Read more »

Growth Shares

2 crackerjack growth shares to consider buying as the dust settles

Jon Smith talks through a couple of growth shares that he feels represent good value for investors right now as…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

I’ve been investing in the stock market for 25 years. Here are 4 tips to navigate the current volatility

Investing during periods of extreme stock market volatility isn’t easy. Here, Edward Sheldon provides his top tips to get through…

Read more »

Investing Articles

£10,000 invested in Tesla shares a fortnight ago is now worth…

Despite extreme volatility, the value of a £10,000 investment in Tesla shares from a fortnight ago hasn’t changed much. That’s…

Read more »