The performance of resources shares BP plc (LON:BP) (BP.L), Glencore PLC (LON:GLEN) (GLEN.L), Tullow Oil plc (LON:TLW) (TLW.L) and Petrofac Limited (LON:PFC) (PFC.L) has been disappointing in recent months. Could they offer turnaround potential?
BP’s share price has come under pressure as a result of the falling oil price in my view. The oil price has declined from $86 per barrel at the start of October to less than $60 per barrel at the time of writing. I wouldn’t be surprised if there are further falls, since investors seem to be factoring in the effect of sanctions waivers on Iranian oil exports.
However, with BP having a dividend yield of around 6% and what seems to be a sound investment strategy, I think that it could outperform a number of its industry peers in the long run.
Tullow Oil’s share price could continue to be volatile in the short run in my opinion. The company continues to have a relatively high amount of debt, and this could make it a riskier option than some of its sector peers.
However, with the company’s shares now having a P/E ratio of around 10, I believe that it could offer a margin of safety. Tullow Oil’s valuation may also be catalysed in the long run by its exploration potential.
Petrofac’s forecasts are relatively disappointing, with it due to report a decline in EPS in the next two financial years. Alongside this, the company could continue to be hurt by the lower oil price, which may lead to reduced activity levels and investment across the industry.
With Petrofac also having ongoing regulatory risks, I feel that it has a challenging outlook. Compared to a number of other businesses operating in the oil and gas arena, I feel it may lack investment appeal for the long term.
Glencore’s shares have been hurt by continued uncertainty regarding the global economic outlook in my opinion. Alongside this, the company may face regulatory risk, while the prospect of a higher US interest rate could hurt demand for a range of commodities.
In spite of these risks, I feel that the FTSE 100 stock could offer long-term investment potential. Its single-digit P/E ratio and focus on the materials used in electric vehicle manufacturing may provide catalysts for the Glencore share price in the long run.