Investor nervousness is building this week, with both the oil sector and retailers under pressure as shareholders doubt the near-term future.
With oil prices at six-year lows and the uncomfortable likelihood that Australian wages and employment conditions are going to become materially worse in the next few years, plunging share prices are understandable.
Of course, wise investors know that 'the best time to be greedy is when others are fearful', but are the latest price falls really an opportunity?
Here's what you need to know about the recent falls at:
Santos Ltd (ASX: STO) – last traded at $4.45, down 70% for the year
On top of weak oil prices, several media outlets have reported recently that a capital raising is 'back on the table' for Santos, which is labouring under heavy debt and low commodity prices. With its beaten-up share price, a capital raising would be highly dilutive to existing shareholders and would also barely make a dint in the company's billion dollar debt pile.
Recently I asked 'Is it time for a punt on oil stocks?', given that Santos and several other companies are trading at their lowest price in over a decade. Those predicting a return to higher prices might find the proposition attractive, but with Santos' finances under threat and the possibility that oil prices could say 'lower for longer', it is a high-risk bet.
I wouldn't be surprised to see Santos head lower while prices are weak and its finances are under threat.
Myer Holdings Ltd (ASX: MYR) – last traded at $0.92, down 64% for the year
Myer is another company whose capital raising prompted investors to sell out, with the stock plunging below $1 yesterday for the first time in over five years. A total of $600m will be required to kickstart the company's 'New Myer' turnaround program – aimed at growing customer numbers and sales – of which $221m will come from shareholders in the form of a capital raising.
A turnaround program is a positive sign but until investors can see a sign that their funds will actually generate a positive outcome for the business, which has gone backwards in each of the past five years, it is a risky proposition.
I feel that Myer could head lower in the near term, and would not consider buying until I can see the green shoots of organic growth popping up.
Costa Group Holdings Ltd (ASX: CGC) – last traded at $1.84, down 17% for the year
It may be cheating to include Costa Group as a 52-week low, given that this business has only been listed on the ASX for three months, but it is yet another reminder of the pricing risk associated with Initial Public Offerings (IPOs).
Costa touted its full-year results as 'prospectus-beating' but I suspect that investors focused on profits of $4.5m from revenues of $736m and found it disappointing. The company's Price to Earnings (P/E) ratio also looks a little crazy, with today's prices of $1.84 equivalent to 78x Earnings Per Share of 2.35 cents. Stripping out one-off costs, the business looks to trade on a P/E of around 16. Growing revenues were welcome but they were accompanied by an equivalent increase in costs, which were not.
Despite its falls, Costa still doesn't look like a buy at today's prices, and I wouldn't be surprised to see it head lower in the near future.
