Anglo American (Q4 update 25 January)
An improving global economy and higher commodity prices continue to make mining companies attractive for investors. Anglo American's production update is likely to confirm further increases in output, which remains prudent given ongoing increases in demand, especially in places such as Asia. Almost half the analysts covering the firm have increased their price targets in the past month, but the consensus price target is still 8.5% below current forecasts, which compares to an average premium of 6.5% for comparable firms.
The mid-2017 slump in mining stocks is over, and in tandem with commodity prices, the sector has recovered impressively. Anglo American faltered at £18.00, but the price has still managed to clear the April 2014 highs. It might be worth keeping an eye out for a dip, in order to obtain a better risk-reward profile, with a pullback towards the November high of £15.34 a possible way to play this.
Diageo (first-half earnings 25 January)
The drinks giant Diageo is expected to report headline earnings of 65p per share, up 15% over the year, while revenue is forecast to drop by 2% to £6.6 billion. Wide geographical distribution, plus an improving outlook, signals a continued good performance, with consumers spending more. A forward price to earnings (P/E) ratio of 21.5 is expensive, relative to the 20.5 two-year average, but this growth stock seems like one to keep on the radar.
Diageo’s shares remain in a strong trend, registering new higher highs and higher lows over the past 18 months. The pullback towards the 100-day simple moving average (SMA) of £25.82 marks the latest higher low and provides a good buying opportunity, with the expectation of a move back above £27.00.