Should You Buy This Month’s FTSE 100 Fallers? Tesco PLC, Meggitt plc & Admiral Group plc

A closer look at last month’s FTSE laggards, Tesco PLC (LON:TSCO), Meggitt plc (LON:MGGT) and Admiral Group plc (LON:ADM).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

tesco2The FTSE 100 may have moved sideways over the last month, but many of the index’s members have seen much bigger moves.

Three of the biggest fallers have been defence and engineering firm Meggitt (LSE: MGGT), motor insurer Admiral Group (LSE: ADM) and supermarket giant Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US), whose share price recently touched a ten-year low.

Every little helps

If — like me — you are a Tesco shareholder, you may be wondering whether the firm’s stock has bottomed out yet.

My view is that the risks of further falls are fairly evenly balanced: when new boss Dave Lewis takes the reins in October, I expect to see Tesco’s profit margins fall and perhaps a dividend cut — all of which would see the shares fall close to the 200p mark, as I explained recently.

On the other hand, if Mr Lewis can regain investors’ confidence, the Tesco’s shares could perform more strongly. Overall, I’m still a buyer of Tesco, but I wouldn’t be surprised to see the supermarket’s share price fall a little further yet.

Meggitt’s profit warning

Shares in Meggitt fell heavily on August 5, after the firm warned that full-year revenues would fall below expectations, due mainly to weak military sales.

However, it wasn’t all bad: the firm’s interim dividend was hiked by 8% and its order backlog rose slightly to £782.7m, maintaining its 1.1 book-to-bill ratio, which means it is booking new sales faster than it is billing for completed orders — a good sign of a growing business.

Overall, I’m positive about Meggitt, but with a 2014 forecast P/E of around 14, I don’t think the firm’s shares are cheap enough to compensate for the real risk of another profit warning later this year. In my view, Meggitt is one for the watch list.

Admiral’s risk

admiral.2Motor insurer Admiral has been a top performer in recent years, thanks partly to its generous special dividend policy.

However, the shine has come off Admiral’s shares recently, as falling car insurance premiums have led to a 9% fall in first-half revenues — and caused the firm to miss market forecasts for its first-half profits.

Admiral is on my sell list at the moment, because I fear that the firm’s bumper prospective yield of more than 7% could be cut dramatically if price pressure continues — shareholders should remember that Admiral’s ordinary dividend yield is just 3.5%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares in Tesco. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »