Can the FTSE 100’s BP plc and Antofagasta plc make you rich?

Should Antofagasta plc (LON: ANTO) and BP plc (LON: BP) be part of your retirement planning?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Half-year results from Chilean copper mining giant Antofagasta (LSE: ANTO) make grim reading. Revenue during the first half of the year increased by 3.6% compared to the equivalent period in 2017 but most of the other figures are discouraging. Cash flow from operations declined just over 22%, earnings per share fell more than 33%, net debt shot up almost 70% to around $781m and the directors slashed the interim dividend by 34% — ouch!

A positive outlook

Chief executive Iván Arriagada explained in the report that the first half of the year is “softer” because of higher costs, lower sales and poorer quality grades of product coming out of the ground. However, he thinks tonnages and unit costs will improve “substantially” during the second half “and well into 2019.” Mined grades will improve as well, he said, “in line with our mine plan.” 

Although the outlook is positive Antofagasta’s financial trading outcome is always subject to several external factors that the company can’t control. For example, commodity prices, inflation and foreign exchange rates all fluctuate and have an impact on the firm’s bottom line. That’s the reality for out-and-out cyclical enterprises such as miners.

So, can Antofagasta make you rich from where it is now? The share price is down today almost 6% as I write, but to set that in context it’s up more than 150% since its January 2016 lows. I would only buy the stock if I believed that commodity prices were heading higher, regardless of how attractive the valuation indicators might be. For now, I’m staying away.

Earnings storming back

Meanwhile, City analysts following oil major BP (LSE: BP) forecast storming earnings with an increase of more than 200% this year and an uplift of 10% in 2019. Since the oil spill disaster in the Gulf of Mexico in 2010, the company has done a good job of rebuilding its operations to become a financially lean operation with potential for growth. In July, chief executive Bob Dudley explained in the interim results report that the firm is making steady progress against its strategy and plans. We brought two more major projects online, high-graded our portfolio through acquisitions such as BHP’s US onshore assets and invested in a low-carbon future with the creation of BP Chargemaster.”

To underline the progress, the directors increased the interim dividend by 2.5%, which was “the first time in almost four years.” At today’s share price close to 560p, the forward dividend yield for 2019 runs near an attractive-looking 5.6%. But shareholder returns are also being enhanced by a share buyback programme. 29m ordinary shares were bought back in the first half of the year, which cost the firm $200m. Although there is a big element of cyclicality in BP’s operations I’d rather take my chances with it than with Antofagasta. I don’t expect BP to make me rich on its own, but I think the stock is capable of delivering steady investor returns from here as long as the price of oil holds up and the firm avoids further oil well disasters.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »