Shares in struggling platinum miner Lonmin (LSE: LMI) popped 10% higher this morning, despite the firm unveiling a $2.3bn loss for the year ending 30 September.
Investors appear to be cheering the firms announcement that it will raise $407m through a rights issue that will be priced at 1p per share a 94% discount to Fridays closing price!
Shareholders will be entitled to buy 46 new shares for every one they currently own. If the rights issue sounds desperate, thats because it is. Lonmins lenders wont renew the firms borrowing facilities until this rights issue is completed.
In a letter to shareholders, Chairman Brian Beamish warned recently that the company could cease trading if shareholders do not approve the rights issue. In my opinion, this would almost certainly leave the shares with nothing.
The big question is whether Lonmins business can be made profitable at with platinum prices at their current level. Although revenue rose by 33% to $1,293m last year, the groups underlying operating profit fell to a loss of 134m.
Lonmins operations were hampered by strike action last year, but its clear that further cost savings are required to make the firms business sustainable. My feeling is that it might just be possible, but its not a sure thing.
Shares in temporary power specialist Aggreko (LSE: AGK) rose by 8% this morning after the firm confirmed full-year guidance for a pre-tax profit of 250m-270m. Aggreko shares fell sharply in July after a profit warning and remain down by 33% on the year to date.
Todays trading update suggests that Aggrekos business may be getting back on track. It could be a decent recovery buy. The shares currently trade on 13.5 times 2015 forecast earnings with a prospective yield of 2.7%.
The main risk, in my view, is that profit margins will be consistently lower in the future than in the past, not least because of the oil market crash. Despite this, I believe the shares could be a buy at up to 1,000p.
Glencore (LSE: GLEN) stock is down 60% this year, but the City is no longer pricing the company for failure.
Last week, analysts at Deutsche Bank upgraded Glencore to a buy, commenting that rapid debt reduction plans have reduced the balance sheet risks associated with the firm. Further asset sales are expected early next year, says the bank, which now has a 200p target price for Glencore shares.
The latest consensus forecasts suggest that Glencore could report earnings of $0.12 per share in 2016m, putting the firm on a 2016 P/E of 15. Analysts expect a dividend payment of about 4.4p per share next year, giving a prospective yield of 3.8%.
Glencore shares also trade at a 40% discount to its last reported book value of 200p per share. However, if Glencore writes down the value of any assets in its 2015 results, then this discount could fall it isnt necessarily a reliable indicator of value.
Investing in out-of-favour stocks like Lonmin, Glencore and Aggreko could deliver big profits, but there are risks.
These companies could be falling knives that will slash your investing profits.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.