Key points
- These two companies may be undervalued when comparing P/E ratios with competitors
- Antofagasta has a compound annual EPS growth rate of 13.4%
- Tullow Oil’s year-end net debt fell to $2.1bn, from $2.4bn the previous year
With recent market volatility, I’m on the hunt for the best shares to buy now. In doing so, I’m looking at the deeper financial state of companies instead of recent price movement. These two firms, engaged in copper mining and oil respectively, have strong underlying results and may be cheap. Should I add them to my portfolio? Let’s take a closer look.
One of the best shares to buy now: Antofagasta
A copper mining business operating in Chile, Antofagasta (LSE: ANTO) is strong in many areas. Between the 2017 and 2021 calendar years, earnings per share (EPS) increased from ¢76.1 to ¢142.5. By my calculations, this company has a compound annual EPS growth rate of 13.4%. This is both strong and consistent. Furthermore, revenue has steadily increased over the same period from $4.7bn to $7.4bn. It is worth noting, however, that a resurgence of the Covid-19 pandemic might halt mining operations.
There is also an indication that Antofagasta is undervalued. By using the price-to-earnings (P/E) ratio metric, I see that the company has a forward P/E ratio of 15.58. This is slightly lower than Glencore‘s 16.07, which is a major competitor in the sector. Currently the Antofagasta share price is trading at 1,637p, down 15% in the past year.
A cheap oil stock
The second business is Tullow Oil (LSE: TLW), an oil exploration and production firm operating across Africa and South America. In a recent trading update for the three months to 31 December 2021, the company reported that underlying operating cash flow was expected to be $700m, ahead of guidance. What’s more, year-end net debt fell to $2.1bn from $2.4bn in 2020.
Going forward, it plans to drill three new wells in its Jubilee field in Ghana and expects the yield to be about three times greater than that of 2021. Furthermore, the firm will commence spudding (the beginning of the drilling process) at the Kanuku JV field in Guyana Q2 2022. While this brings the possibility of further oil discoveries, there is always the risk that the yield will be disappointing.
Tullow Oil has a trailing P/E ratio of just 5.17. This is significantly lower than BP, a leader in the oil market. BP’s trailing P/E ratio is 13.73. This suggests to me that there is massive upside potential for the Tullow Oil share price, that is currently 57.88p, up 23.5% in the past year.
Both of these companies may be cheap and are supported by strong financial results. By adding them to my portfolio, I think I can achieve long-term growth. I will be buying shares in both firms without delay.
Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
