Shares in Tullow Oil (LSE: TLW) have fallen 19% during the past week, and I believe fresh weakness could be just around the corner. As if Brent’s slide from the $50-per-barrel marker wasn’t bad enough, a disappointing set of releases during the past week has tested investor patience still further.
Tullow started the ball rolling by advising that production problems in Africa will drive regional full-year output to 62,000-68,000 barrels per day for 2016. This is a significant markdown from the previous 73,000-80,000 barrels estimate.
And it worried the market this week after launching a $300m convertible bond auction to bolster its balance sheet. This is the latest step Tullow Oil has taken to mitigate weak oil values — the company’s debt ballooned to $4.5bn as of April, up from $4bn at the start of the year.
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Even though Tullow’s TEN project is expected to produce maiden oil any time now, the probability of sustained crude weakness is likely to keep the company under severe pressure, in my opinion.
And a huge forward P/E rating of 78.7 times leaves plenty of scope for further share price weakness, in my opinion.
SOS!
Shipping giant Clarkson (LSE: CKN) has seen its value slump 21% during the past week, the stock visiting three-year lows in the process. Already-flaky trader confidence was whacked by an update in which Clarkson referenced the Baltic Dry Index coming close to hitting fresh record lows in recent months.
The shipper noted that “this deterioration in freight rates reflects the increase in global economic uncertainty and the continuing imbalance between supply and demand in shipping and offshore.”
Clarkson now expects profits to be “materially lower” this year versus 2015 levels. And I wouldn’t expect the bottom line to tick higher any time soon as global trade growth cools.
As such, I reckon Clarkson is a poor stock pick at the present time, particularly as a P/E rating of 14 times for 2016 falls outside the benchmark of 10 times indicative of stocks with shaky growth prospects.
Confidence collapses
As if Tesco (LSE: TSCO) wasn’t struggling enough to hold onto the coat tails of Aldi and Lidl, the result of last month’s referendum has thrown another spanner in the works.
Signs of declining shopper appetite are continuing to gather pace. Following on from YouGov’s pessimistic release after the vote — which showed consumer confidence toppling to three-year lows — GfK announced on Friday that its own gauge had recorded its steepest fall for over two decades.
This is likely to put margins across the grocery industry under further pressure as shoppers desperately scramble to save cash. Indeed, the last such rush for value gave rise to the low-price chains following the 2008/09 financial crisis, and with it the decline of Tesco.
The Cheshunt chain has seen its share price sink 9% during the past week. And I reckon increasingly-challenging conditions should keep the business firmly on the back foot, particularly as a massive prospective P/E rating of 25.2 times still fails to take into account Tesco’s high risk profile.
