Which is the best resources stock after today’s results?

Which of these three resources companies has the best investment potential?

| 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.

The resources sector has enjoyed a promising 2016. Commodity prices have improved in recent months and investor sentiment has picked up. Today, three resources companies released results and they tell us a great deal about their future investment potential.

Cairn Energy

Cairn Energy’s (LSE: CNE) half-year results show that the company is making strong progress with its drilling and exploration programme. The successful appraisal of the SNE discovery in Senegal has significantly increased the best estimate of contingent resources (2c) to 473m barrels, which is an increase of a third on the previous figure. Furthermore, Cairn’s best estimate for gross oil in place in the SNE field stands at 2.7bn barrels, with exploration potential for around 500m barrels.

Drilling is scheduled to recommence in Senegal soon. Cairn is likely to be a beneficiary of the low oil price in one sense, since drilling costs have fallen heavily across the sector. This will ease the pressure on its financial performance and with Cairn having $414m of net cash on its balance sheet, it’s in a strong position to develop its asset base. It remains lossmaking, but could become a sound long-term investment.

Sirius Minerals

Sirius Minerals (LSE: SXX) has released interim results today, highlighting the strong progress made by the company during the period. Although Sirius made a loss of £4.1m, this was a narrowing of the £4.7m loss made in the April-September period of last year. Furthermore, its cash resources remain significant, with cash on its balance sheet of £16.9m.

The period saw Sirius complete its definitive feasibility study for the polyhalite project. It also announced the funding requirement for stage one of the project, with Sirius requiring $1.09bn. Although progress is being made towards raising those funds, the reality is that resources companies remain out of favour among many investors due to the difficult period prior to 2016, when commodity prices slumped.

Therefore, a question mark remains over Sirius’s ability to generate the funding for the project on attractive terms. As such, it may be prudent to wait for further news regarding this issue before buying a slice of it.

Wood Group

Also reporting today was Wood Group (LSE: WG). Although its sales fell by 17% in the first half, its cost-saving programme reduced overheads by $50m. It continues to focus on a major reorganisation that will make the company increasingly efficient and improve customer delivery at a time when trading conditions are exceptionally challenging.

Wood Group has maintained its guidance for the full year. In addition, it sees the very early signs of a modest recovery in some areas and when this is combined with its strategy of reducing costs, it could begin to deliver improved profitability over the medium term.

Furthermore, it has today announced a contract win with TCO worth $700m. This shows that while Wood Group’s future is uncertain, it remains a sound business that’s performing well given the current conditions. Due to it being profitable and having a brighter financial outlook than Cairn and Sirius Minerals, it’s my pick of the three resources companies.

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.

Peter Stephens 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

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »