Could Worleyparsons Limited be the best value stock on the ASX?

Looking for down and out companies can be rewarding.

| More on:
a woman

Contrarian investors are those that invest counter-cyclically and rely on timing the market bottom to buy out-of-favour companies. Right now, I imagine the best contrarian investors are casting a careful eye over the extremely out-of-favour mining services sector.

Down and Out

Some of the largest and previously most successful businesses in the mining services sector have fallen into oblivion, having taken on too much debt during the boom years. Investors in these companies, such as Forge Group and a number of others close to collapse, have sustained near complete loss of capital.

But there remain bright spots in the industry.

Quiet Achievers

Within the sector I’m quite a fan of those companies that have reduced exposure to coal and iron ore mining in favour of the oil and gas industry, while restricting gearing to manageable levels. Additionally, those with exposure to ongoing maintenance and service contracts are preferable to design and build contracts.

Two of my favourites are Downer EDI Limited (ASX: DOW) and Worleyparsons Limited (ASX: WOR). I’ve written about Downer previously and believe it remains underappreciated for longer-term growth. Worleyparsons meanwhile, has much higher exposure to mining and energy, but could still be a good long-term investment.

Solid Outlook

Worley has several earnings segments – Hydrocarbons; Minerals, Metals and Chemicals; Infrastructure and Environment; and Power. Hydrocarbons is by far the largest segment, accounting for over 70% of earnings, and over 80% of group revenue is generated outside of Australia. This is a positive in my eyes as the company is less reliant on a buoyant Australian economy and will benefit from a lower Australian dollar.

Gearing has been reduced to below 25%, extremely manageable for a company with Worley’s cashflow, and a big dividend yield of over 6.5% is predicted for the 2015 financial year.

Risks include continued weakness in the oil price, a higher Australian dollar, and slowdown in global energy sector spending. However, after a 60% fall in the share price over the last 2.5 years, the rewards could soon start to outweigh the risks.

A More Robust Option

Investors are rightfully cautious about investing in the mining services sector, there is a huge amount of uncertainty and we are probably still 12 to 18 months away from discovering how bright the future will be. In the meantime, long-term investors should continue to invest in companies with sustainable advantages over peers.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

The share price of ASX infant products retailer Baby Bunting Group Ltd (ASX:BBN) has been a solid performer so far …

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

A new landmark report by the Intergovernmental Panel on Climate Change (IPCC) was released earlier this week. It provided a …

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest …

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos Limited (ASX: AMS) share price has been on a tear this past week, rising 15% on the back …

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

Online furniture retailer Temple & Webster Group Ltd (ASX: TPW) had a breakout year in 2020, moving from relative obscurity …

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

Shares in ASX healthcare company Polynovo Limited (ASX: PNV) almost doubled in price last year. And, despite a shaky start …

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

Investing in other geographic markets has become a popular way to diversify a portfolio. The risks associated with being exposed …

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

Despite the News Corporation (ASX: NWS) share price getting a 31% bump between November last year and today, News Corp …

Read more »