2 stocks that seem absurdly cheap right now

These two shares seem to offer wide margins of safety and low valuations.

| 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 mining sector may have enjoyed a more prosperous period in recent months. However, many of its constituents continue to offer low valuations and the potential for improving share price performance.

Certainly, the risks from declining commodity prices remain. The global economy’s performance could come under pressure and lead to a general slowdown. But with wide margins of safety, these two mining companies appear to be worth a closer look right now.

Improving performance

Reporting on Tuesday was zinc/gold miner Griffin Mining (LSE: GFM). The China-focused operator delivered a 91% increase in revenue, with its operating profit of $64m 319% higher than in the previous year. It delivered record production in 2017, while cash generated from operations of $77.4m enabled all bank loans to be repaid. It also allowed the company to invest $13.3m in further development of the Caijiaying mine, as well as in exploration and equipment purchases.

Looking ahead, Griffin Mining is expected to deliver a modest 3% rise in earnings in the current financial year. While there are mining stocks with higher forecast growth rates, the company’s price-to-earnings (P/E) ratio of around 9 suggests that it could offer good value for money. That’s especially the case since demand for gold miners could increase if global inflation expectations continue to rise.

Of course, the company is relatively small and seems to lack the diversity of some of its sector peers. Therefore it may mean a relatively risky investment opportunity. But with strong progress being made in its operational and financial performance, its low valuation suggests that it could deliver high rewards in the long run.

Turnaround potential

Also offering upside potential within the sector is gold miner Acacia (LSE: ACA). The company has experienced a hugely challenging period, with an export ban in Tanzania hurting its financial performance. For example, in the last financial year the company’s bottom line moved into the red despite a relatively strong year for the gold price.

Looking ahead, there could be further uncertainty for the business. The trading conditions it faces may remain tough and while it seems to have a solid strategy, it could experience significant volatility over the medium term.

However, investors may have factored in potential challenges for the business. Acacia trades on a forward P/E ratio of around 8. And with its bottom line due to return to the black in the current year, investor sentiment could improve – especially since earnings growth of 10% is forecast for the 2019 financial year.

With the gold price having the potential to rise due to a mix of uncertainty in the prospects for the global economy and the recent volatility in riskier assets such as shares, now could be the perfect time to buy gold miners. Acacia may be at the riskier end of the investment spectrum, but its potential rewards could be high.

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 of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

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 »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »