Each firm has underperformed the market this year, but I believe they could be well positioned for a recovery, as Ill explain.
Although Wood Groups share price is now down by 40% from its 2013 peak, the group has aggressively cut costs to face the new oil market environment. Five thousand staff have lost their jobs, and many of the remaining employees and contractors have had pay cuts.
The result so far is that despite pricing pressure from customers, Wood Groups profit margins have stayed firm. Indeed, Wood Groups first-half adjusted operating margin of 7.4% was actually higher than the 6.4% reported for the first half of 2014.
After making such big cuts, I was interested to read this morning that Wood Group has now made an acquisition. The firm is spending $150m to buy a US construction and maintenance contract called Infinity Group, which operates on the Gulf Coast of Texas.
This deal gives Wood Group access to the refinery and gas processing sectors in an important oil area. It also seems reasonably priced, to me, at around five times Infinitys forecast operating profit for this year.
Wood Group currently trades on 12 times 2016 forecast earnings and offers a 4% prospective dividend yield, backed by strong free cash flow. The shares look a decent medium-term buy, in my view.
Shares in internet television set-top box provider Amino fell by 30% in one day in October, after the firm issued a profit warning. Such warnings are often said to come in threes, but the firm said today that full-year results would be in line with revised expectations.
Amino says that it has now restructured its sales teams to address the sales shortfall seen during the first half of the year. On this basis, next years forecast earnings of 9.1p per share put Amino stock on a 2016 forecast P/E of just 11.8, with a prospective yield of 5.5%
That seems an attractive valuation to me, given that the firm has regained its net cash status despite the recent acquisition of Entone. My only real concern is that Aminos products may become redundant over the next decade, as technology continues to evolve.
On balance, Im unsure about this one.
Royal Dutch Shell
Shell announced this morning that it has received approval for its takeover of BG Group from the Australian regulator. Only one key approval remains, from the Chinese authorities. This is expected early next year, but in the meantime I reckon Shell could be worth a closer look.
Shell stock is now priced on a 2016 P/E of 12 and has a price/book ratio of 1. This valuation suggests to me that the shares are priced for a market that wont improve.
Shells 7.5% dividend yield tells the same story a yield this high normally indicates a cut is likely.
However, I think the markets view may prove to be too harsh. The oil market will eventually recover. Ive topped up my holding in Shell recently, and believe the shares could deliver attractive gains over the next few years.
Of course, trying to time the bottom for Amino, Wood Group and Shell is likely to be very difficult. Patience will probably be required to see decent returns.
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Roland Head owns shares of Royal Dutch Shell. 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.