Oil, iron ore, and veterinary services.
It's no surprise to see companies in the first two sectors taking a dive, as both the iron ore and oil markets have been hammered by falling prices this week.
Our third contender seems to be suffering from investor anxiety over a recent market update combined with rising anxiety over the potential success (or lack of) its rapid expansion into retail. Here's what you need to know:
Fortescue Metals Group Limited (ASX: FMG) – last traded at $1.735, down 62% in the past year
Fellow contributor Ryan Newman counselled iron ore investors to batten down the hatches after the price of the steelmaking ingredient fell below US$50 per tonne earlier this week. With the macroeconomic outlook (excess supply and shrinking demand) still looking negative, I'm not at all sure why investors continue to take risks with the sector.
Fortescue labours under billions of dollar of debt and its most recent bond issue saw the company forced to accept interest rates of 9.75% on its funds. This is a sign that bond investors view the company as a risky bet and should serve as a warning to shareholders as well.
Fortescue is not a buy even at its current 'low' price.
Oil Search Limited (ASX: OSH) – last traded at $6.955, down 28% in the past year
During the heights of $8 and $9 reached by Oil Search shares last year, I wrote that the business was greatly overpriced and that the market had already factored plenty of earnings growth potential into its price.
While shares have taken a battering, I still believe Oil Search is overpriced thanks to a combination of expected high ongoing capital expenditure and a high cost of production in addition to various geographical and political risks.
Curiously, analyst Morningstar forecasts the price of LNG over the medium term at some 20% lower than the price Oil Search currently receives for its product. Analysts' forecasts are routinely wrong, but the general direction of forecast LNG prices (downwards) may be worth keeping in mind.
There is a price at which I would buy Oil Search shares, but it sits somewhere south of $6.
Greencross Limited (ASX: GXL) – last traded at $5.14, down 44% in the past year
Finally, Greencross Limited continues its slide in the aftermath of a negative trading update earlier this year when the company revealed a number of one-off costs and a decline in its Western Australian businesses.
I wrote earlier this year that Greencross looked like a buy at around $6.50, and the stock looks like even better value for the long-term at today's prices. While this year's results may be a little weaker than expected, Greencross is in a position to reach a growing number of pet owners and is also leveraged to a growing trend of consumers spending big on their pets.
Greencross is also thought to be more resistant to weak retail spending due to the close bond many pet owners form with their animals. With all these factors in its favour and trading on a modest Price to Earnings (P/E) ratio of ~15, I'd say Greencross looks like a strong buy at today's prices.
