Pumping up an investment portfolio with ‘cheapish’ oil stocks could lead to gushing profits, says one industry expert.
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Jupiter Absolute Return fund manager James Clunie expects up to a 50% return within three years on BP, Shell, and Statoil holdings.
He argues the stocks are reasonably priced and that companies are managing costs to give better returns.
“Getting on top of their costs after some years of overspending will take some time to turn prices around, but meanwhile, a 5% dividend is worth taking,” said Clunie.
“Totting up gains in share prices and income from dividends could easily mean a 50% return over three years. But, of course, that’s not really going to be dependent on oil prices or how the economy performs either.”
Clunie considers BP riskier than the others, mainly because of the impact of having to settle huge compensation claims for the Gulf of Mexico oil spill.
Shining base metals
James Sutton of JP Morgan is keener on commodities than equities as well.
Uncertainty over when interest rates will rise and concerns over ongoing conflicts in the Middle East and Ukraine have taken a toll on the markets, he says.
Sutton advocates investing in base metals and has tracked their prices against equities across recent times.
He cites positive manufacturing and economic data from China as boosting base metal prices.
Platinum and palladium feel the benefit of improved confidence and growth in China and explain that the market is restricted because one of the main producers, Russia, is facing export sanctions that will keep supply tight.
“Stocks in base metals and mining companies have performed very well recently,” said Sutton.
“Diamonds are also shining thanks to more demand from China and companies managing the supply to keep prices up.
“The strength of the base metal market is how the markets are constrained to buoy prices.”
Indian summer success
Indian Prime Minister Narendra Modi has just passed his first 100 days in office and has already injected life into a lacklustre economy.
According to Ajay Argal of Baring Asset Management, a catalogue of measures aimed at boosting growth has improved confidence to trigger a new round of growth that is predicted to last for three to five years.
“If the current trend is maintained and inflation comes under control, I expect increased corporate earnings supporting better dividend payments and a rerating of stocks,” he said.
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