If you ever wondered why investors scourthe market for thrilling contrarian plays, take a look at Anglo American (LSE: AAL). The global mining giant was the worst performing stock on the FTSE 100 in2015, losingaround 70% of its value. And it continued to plunge at the start of this year to hit a low of 215p, a spiralling, dizzying, morale-sappingplummet fromits 52-week high of 1,250p. Then, just when investors were giving up, it showed itscontrariness.
Anglo American dream
Few blue-chip stocks fallthis fast,and few rise as fast as Anglo American has over the last few weeks. The share price is 97% higher than it was one month ago. If you had invested at the bottom of its death plunge, you would have doubled your money.The question is where Anglo American goes next. I urge caution: what weve just seen is a rebound in a stock and sector that was oversold in the heat of a market meltdown.I would still hesitate to plough good money into AngloAmerican.
Sentiment has recovered but itcould collapse just as quickly and drag down Anglo American with it. The minerhas just posted a 5bn full-year lossand its net debt stands at around three timesunderlying earnings. Chief executiveMark Cutifanis massive $6bn asset dumpand cost savings plan may be too late, as I cantsee a sharp reversal in commodity prices given the current glut.
Optimists may point to sharply rising M3money supply figures in China as a sign of a brighter future. Pessimists might directthem to the Baltic Dry Index, which recently fell to itslowest level since records began in 1985asglobal trade slumped. Anglo-American fell 7.76% on Friday, which is the kind of volatility you have toexpect going forward.It isntoutof the woods yet.
Rolls-Royce rebound
Engine maker Rolls-Royce Holding (LSE: RR) has also raced up the gears, rising 20% in the last week alone. This offers loyal investors a rare moment of sweet relief after enduring a string of profit warnings over the past two years. The City has long complained about the companys confusing accounting methods and unhelpful guidance, which is the type of thing you can get away with when business is booming but leaves you short of friendsin a slump.
The companys2015 full-year results showed a 12% drop in underlying profit before tax to 1.4bn at constant exchange rates, down from 1.62bn in 2014. Markets were relieved that there was no more bad news (its now a whole three months since the companys lastprofit warning) and shrugged-off managements decision to reducethe dividend by half, the first cut in 25 years.
Rolls-Royces supporters might point to its vast order book butit still needs to turn that into steady revenues, and chief executive Warren East has a mighty restructuring job on his hands to turnthis crate around. At least he has the power to change things, whereasMark Cutifani at Anglo American is at the mercy of higher powers, namely the commodity gods.
I would choose Rolls-Royce over Anglo American right now but why bother with either when there are more exciting growth prospects on the market today?
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Harvey Jones 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.