A recent fall in gold and silver prices has unsurprisingly played havoc with the share prices of precious metals producers like Fresnillo (LSE: FRES).
The stock has shed 29% of its value in the past month alone, and is now dealing at a whopping 43% discount to the six-year tops struck in the days following June’s Brexit referendum. However, I believe there’s plenty of mud left in the system that could drive metal values — and with it market appetite for Fresnillo — back up again.
A resurgent US dollar has put paid to the rising cost of gold and silver in recent months, with robust economic indicators across the Pond leading to fevered speculation of fresh Federal Reserve rate hikes in the months ahead. This has also led to investors ploughing into riskier assets like stocks and away from so-called ‘safe havens’ like precious metals.
This environment has led gold to 10-month troughs around $1,150 per ounce just this week. Still, there are a number of huge political events in 2017 — like key elections in France and Germany, Britain’s troubled extraction from the EU, and questions over the future direction of the US under a Trump presidency — that could turn market appetite on its head once again.
These factors saw investment demand for gold pump 44% higher during July-September from a year earlier, according to recent World Gold Council data.
On the one hand, Fresnillo’s heady P/E ratio of 21.7 times for 2017 — some distance above the FTSE 100 average of 15 times — could hamper investor appetite for the stock in the coming months. However, I believe it’s far from inconceivable that the producer could still pump higher again given the scale of the challenges facing the world’s economic and political stage next year.
Brand behemoth
I’m certainly optimistic concerning the long-term investment outlook for household goods leviathan Reckitt Benckiser (LSE: RB), and believe a 15% share price dip from July’s record peaks represents a prime opportunity for dip buyers.
While sales expansion has moderated in recent months — like-for-like revenues advanced 2% during July-September, halving from 4% during the first half of 2016 — the huge long-term potential of its emerging regions was once again underlined. In particular Reckitt Benckiser observed “strong growth in India and China” in the quarter, and rampant demand in the Asian powerhouses drove underlying sales from developing markets 7% higher.
The City certainly feels the recent sales cooldown is nothing more than a mere blip, and earnings are expected to rise 15% in 2017, speeding up from a predicted 13% rise in the current 12 months. This leaves Reckitt Benckiser dealing on a P/E ratio of 19.2 times for next year.
Sure, further share price weakness can’t be categorically ruled out in the near term, but I reckon Reckitt Benckiser is great value at resent. The formidable brand strength of labels like Durex condoms and Nurofen painkillers across the globe gives the firm exceptional earnings potential, while the possibility of further earnings-driving acquisitions in fast-growth areas like consumer health provides another reason to expect sterling returns.
