Q: Looking to add oil sector to my portfolio (price of barrel near multi year low). What these two would you prefer, how possible is a large multi increase over the next 5 years?
5i Research Answer:
SOIL is much cheaper due to its high debt. LGN, based on consensus, is expected to see better growth over the next three years. We would side with LGN here. With its valuation and debt, SOIL could though do very well IF there was a giant sector rally. Investors do not care so much about risk if there is a party going on in the sector. It could double+ under perfect conditions. But this is not something we would expect, and risks are high in such cases. Overall, we would suggest that multi-bagger potential is fairly low here for both.