While there is a very real possibility that the oil price could fall further, for long-term investors now could be a great time to buy oil stocks such as Tullow (LSE: TLW). Thats because the companys valuation appears to already price in a deterioration in the price of oil, with Tullow trading on a price to earnings growth (PEG) ratio of just 0.2.
This indicates that it offers growth at a very reasonable price and, with Tullow transitioning from an exploration company to an oil producer, its bottom line could become relatively stable in the medium to long term. As such, and while its share price is likely to remain volatile in the near term, now could be a great time to buy a slice of it.
With its shares having fallen by 43% in the last year, buying a stake in Premier Oil (LSE: PMO) may seem like trying to catch a falling knife. And, in the short to medium term, its share price could come under even more pressure, with additional write downs of its asset base still a distinct possibility.
However, further problems appear to be priced in, with Premier Oil having a relatively wide margin of safety. For example, it trades on a price to book (P/B) ratio of just 0.65, which indicates that there is limited downside and a considerable amount of upside. As such, it appears to be worth buying now for the long term.
Despite being a relatively well diversified mining company, Vedanta (LSE: VED) has been unable to escape a fall in a wide range of commodity prices in recent months. As such, the companys share price has slumped by 36% in the last year. And, looking ahead, things could get worse before they get better for investors in the company.
Thats because Vedanta is forecast to post a loss in the year just ended, as well as in the current year. This is likely to cause investor sentiment to decline in the short run but, looking a little further out, Vedanta is expected to post a profit in financial year 2017. And, with the company trading on a forward price to earnings (P/E) ratio of 13, it seems to offer good value for money, but only for longer term investors.
Even though gold producer, Randgold Resources (LSE: RRS), has seen its bottom line fall by 46% in the last two years, its shares have still risen by 7% in the last year. Thats partly because the outlook for the gold price is much more positive than for most other commodities at the present time, but also because Randgold is expected to post upbeat earnings numbers over the next two years.
For example, Randgolds bottom line is forecast to rise by 7% and by a further 13% next year which, while impressive, appears to be fully reflected in the companys valuation. In fact, Randgold has a PEG ratio of 1.8, which indicates that even though its shares have performed well in recent months, they may not be the most lucrative buy in the resources space right now.
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