Considerable future potential
Although the declining oil price has caused severe problems for a number of oil producers, Shell (LSE: RDSB) (NYSE: RDS-B.US) is turning a huge challenge into a significant opportunity. In fact, Shell’s takeover of BG is just the first of many acquisitions that the oil major could engage in over the medium term.
A combination of Shell’s excellent cash flow and moderately leveraged balance sheet, together with very low sector valuations, could provide an excellent opportunity for Shell to improve its asset base and build a stronger long-term future for its bottom line.
And while Shell’s share price has itself fallen by 18% in the last year, it offers considerable future potential. That’s at least partly because it trades on a price to earnings (P/E) ratio of 16.2 and is forecast to increase its earnings by a third next year, which is far superior to the FTSE 100’s mid-to-high single-digit growth prospects.
A potent mix
One of the challenges facing Barclays (LSE: BARC) (NYSE: BCS.US) is the sheer volume of regulatory allegations and fines that continue to assail the banking sector. But while they hurt investor sentiment and Barclays’ bottom line in the short run, they also provide an opportunity for long-term investors to buy in at a very enticing share price.
For example, Barclays currently trades on a price to book (P/B) ratio of just 0.65, which suggests that its shares are very cheap. And, while there could be turbulence in the UK economy due to potential political risk, as well as the possibility of further problems from Greece and the Eurozone, it’s unlikely that there will be significant write downs to Barclays’ asset base. As such, its lowly valuation seems very difficult to justify at the present time.
In addition, Barclays is forecast to yield as much as 4.3% next year, which indicates that its shares look set to offer a potent mix of income and value. This should be enough to allow them to beat the performance of the FTSE 100.
Exceptionally strong growth
Although Glencore’s (LSE: GLEN) potential bid for Rio Tinto seems increasingly less likely, with the Australian government saying that they would block such a move, Glencore continues to have significant potential on its own.
For starters, it has exceptionally strong growth prospects which have recently been revised up, with Glencore now expected to increase its bottom line by 10% this year and 56% next year. And, at a time when interest rates are set to stay low for some time, Glencore’s yield of 4% should help to boost investor sentiment in the company over the medium term.
Certainly, Glencore remains a relatively risky play, with the mining sector having the potential to experience even lower commodity prices in the short run. However, its P/E ratio appears to more than compensate for this risk, with a rating of 19.9 indicating that Glencore offers growth at a very reasonable price.