Today was a tough day for resource stocks, with the value of iron ore hitting a 10-year low and Brent Crude oil dropping another 2% overnight to sit at US$43.22 per barrel. The S&P/ASX 200 (INDEXASX: XJO) was up just 0.16% at the time of writing.
It’s no surprise to see oil drillers and iron ore miners punished, but what about today’s other losers? Are any of them a buying opportunity?
Reffind Ltd (ASX: RFN) shares lost 7% to trade at $0.66, having shed three-quarters of their value since the end of November – they’re still up 189% for the year though! The fall looks to be due to increasing investor awareness of the stock’s capabilities as the hype over its rising share price wears off. Bluntly, investors have realised that Reffind isn’t making very much money, and may not do so for some time yet.
However, repeated contract wins recently are a very positive sign, and shares are now below what I paid for them back in September. I’m considering picking up some more, when strict Foolish trading rules permit.
Shares in Oil Search Limited (ASX: OSH) dipped 5.6% to $7.505 after weaker oil prices overnight, though its fall was overshadowed by Drillsearch Energy Limited (ASX: DLS) and Beach Energy Ltd (ASX: BPT) who lost 9% and 11% respectively.
Investors are worried that low oil prices will start crimping margins, and today’s prices are close to the cost of production for a number of smaller producers. Even some big companies like Santos Ltd (ASX: STO) – which lost 9% today – may start to struggle as a result of their high debt load.
Oil Search is one of the better-positioned stocks, however, and would be worth examining closer for investors looking for a secure way to play a potential recovery in energy prices.
Origin Energy Ltd (ASX: ORG) shares also shed 5.4% to $5.13 on a weaker oil price. While Origin has substantial assets outside of the oil industry, investors are factoring in lower cash flows from its Asia-Pacific LNG plant, which is a key part of any investment thesis involving Origin.
Shareholders are also bearish on the company’s transition away from dirty energy over the next few decades which, while it will save Origin’s long-term future, is also likely to cost a lot of money. The stock has been pretty beaten up and now is a good time for potential buyers to start doing their research.
Finally, Spotless Group Holdings Ltd (ASX: SPO) shares continued to crash today, losing another 13.6% to $1.07 as investors responded to a company announcement released after market close on Friday. The ASX had queried Spotless’ board over a sudden change in the company’s prospects, given that management announced first a profit upgrade and then a downgrade within a six week period.
These troubles aside, Spotless does look cheap at today’s prices – assuming there are no other downgrades forthcoming – and has probably been oversold as investors are currently quite nervous of companies formerly owned by private equity.
With that said, I am not looking to pick up shares as I feel the company’s business model is unfavourable and vulnerable to disruption and/or competition.
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Motley Fool contributor Sean O'Neill owns shares of Reffind Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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