Today I am looking at the investment potential of three of the FTSE’s August superstars
Antofagasta
Somewhat counter-intuitively, shares in copper giant Antofagasta (LSE: ANTO) enjoyed a stellar run in August even as heightened macroeconomic concerns smacked commodity markets. The digger ascended 7% during the month, but I fully expect this healthy uptick to represent nothing more than a flash in the pan.
Indeed, copper prices bottomed out at six-year lows last month around $4,980 per tonne, and I believe further weakness can be expected as the news out of China continues to disappoint and bubbly production activity worsens the market imbalance. When you throw Antofagasta’s enduring output problems into the bargain, such as industrial disputes at its Los Pelambres complex, I reckon the stock is at risk of significant weakness looking ahead.
The City expects the miner to clock up a third successive earnings slip in 2015, this time by a colossal 34%. This figure leaves Antofagasta dealing on a frankly ridiculous P/E multiple of 30.1 times, an elevated figure that leaves it in danger of a severe price correction should investor sentiment worsen once again.
Randgold Resources
Like Antofagasta, I reckon precious metals play Randgold Resources (LSE: RRS) could be set for fresh pain as commodity markets swirl — an 4% share price improvement last month provided a rare cause for cheer given the stock’s steady downtrend since late January.
Yellow metal prices enjoyed a bump in August as the Federal Reserve once again held off on electing to raise rates. But a fresh strengthening of the dollar is likely as fiscal tightening transpires and emerging market devaluation drives the value of the greenback. Furthermore, a steady decline in physical buying in key markets India and China alike also threatens to put the gold price under the kibosh looking ahead.
The effect on Randgold’s earnings outlook is not surprisingly painful, and like its red metal peer, the business is also expected to chalk up a third consecutive slide this year — a 12% fall is currently forecast, resulting in an expensive P/E ratio of 27.7 times. With the bears still circling — spot gold fell to a five-and-a-half-year trough of $1,080 per ounce in late July — I believe Randgold is vastly overvalued at the present time.
Monitise
Shares in mobile banking provider Monitise (LSE: MONI) enjoyed a splendid end to the summer and advanced 15% during the course of August in oft-volatile conditions. But shakiness is nothing new at the firm, and Monitise has a long way to go to shake off the downtrend that has enveloped it for well over a year now — the stock has shed 93% of its value since February 2014.
While new accords with the likes of Santander have shored up confidence in Monitise’s long-term revenues outlook, the competition continues to intensify with industry leviathans like Google and Apple making huge progress in the field. Indeed, the imminent termination of Visa’s links with the firm embodies the problems facing Monitise, with the American credit card giant electing to go it alone and develop its own systems.
Monitise is not expected to swing into the black until 2017 at the earliest, and given the rate at which the firm is burning through cash — gross cash fell to $88.6m in June, down from $129m at the close of last year — I believe the banking specialist is a massive risk for investors. And unless the newsflow surrounding Monitise improves substantially in the near-term, I fully expect shares to rattle lower again.