Today I am looking at the investment prospects of two London laggards.
Metals play gets mashed
It comes as little surprise that platinum group metal (or PGM) producer Lonmin (LSE: LMI) suffered another heavy headache last week as commodity prices extended their downtrend. The business saw its share value haemorrhage an extra 27% between last Monday and Friday, and I see no immediate levers that could bring Lonmin’s eye-watering collapse to a halt.
Fresh fears over the state of the Chinese economy recently forced palladium below the critical $500 per ounce marker for the first time for five-and-a-half years last week, at around $486 per ounce. And sister metal platinum remains a whisker away from hitting levels not seen since December 2008 — it was last dealing at $860 per ounce.
As well as battling the prospect of further revenues weakness, Lonmin also has to deal with worsening currency movements — the South African rand sank to fresh record lows versus the US dollar just today — as well as the problem of escalating operating costs.
While Lonmin’s decision to raise cash via a $400m placing in November buys the company some much-needed time, until metal prices begin to charge higher again I believe the digger remains a risk too far at the present time.
A brilliant banking pick
Banking colossus Lloyds (LSE: LLOY) was also one of the notable casualties of last week’s sell-off across the FTSE, although the business shed a more modest 6% between last Monday and Friday. The stock is no stranger to severe price weakness, however, with Lloyds shedding more than a fifth of its share value since 2015’s highs of 89p back in May.
I have long considered Lloyds to be a terrific selection for bargain hunters, however, and last week’s collapse to two-and-a-half-year lows represents a fresh buying opportunity in my opinion.
Concerns over hulking PPI-related bills are likely to remain a concern at Lloyds for some time to come — the bank has proved the biggest culprit in when it comes to mis-selling products to the public, and was forced to stash a further £500m away in provisions between July and September, taking the total to a whopping £13.9bn.
But I believe there are plenty of other reasons to excite investors, with the steadily-improving UK economy helping to power revenue growth at its High Street operations. Meanwhile, the roaring success of Lloyds’ Simplification cost-cutting exercise, not to mention its continuing asset-shedding programme, is also helping to undergird earnings growth.
Although Lloyds is expected to suffer an 8% earnings slide in 2016, the bank still changes hands on an ultra-low P/E rating of 9.6 times. Any reading around or below 10 times is widely considered too good to pass up.
And with the business expected to raise a projected 2.4p-per-share dividend for 2015 to 3.7p in the current period — a figure that creates a market-busting 5.1% yield — I believe Lloyds is one of the of the most attractive banking stocks on the market.