Will WM Morrison Supermarkets PLC, Lonmin Plc And SEGRO plc Beat The Market in 2016?

Should you buy shares in WM Morrison Supermarkets PLC (LON:MRW), Lonmin Plc (LON:LMI) and SEGRO plc (LON:SGRO) for Christmas?

| 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.

For shareholders in SEGRO (LSE: SGRO), Wm Morrison Supermarkets (LSE: MRW) and Lonmin (LSE: LMI), 2015 has been a year of the good, the bad and the ugly.

While commercial property firm SEGRO is up 17%, Morrisons is down 16% and Lonmin shares have fallen by an ugly 99%.

However, next year’s winners and losers will almost certainly be different. Are Morrisons, Lonmin or SEGRO likely to beat the market in 2016?

Better prospects

I’ve been cautiously impressed with Morrison’s management and financial results over the last year.

Scrapping the M Local convenience stores and launching a low-cost trial in filling station forecourts seems like a smart move to me. Morrisons was too far behind Tesco and J Sainsbury to compete directly, but could do well in the right locations.

The firm’s financials are also improving. Strong cash flow has reduced net debt from a peak of £2.8bn in February 2014 to £2.1bn at the end of the third quarter. A further reduction is expected during the fourth quarter.

Morrisons now trades on 16 times current year forecast earnings, falling to 13.5 next year. The stock offers a 3.5% prospective yield and is currently trading at its book value of 152p. Unless you believe Morrisons will fail to make any further progress, I believe the shares look good value.

Smart move?

SEGRO’s decision to refocus its portfolio on high-quality logistics properties always seemed smart to me. It seems to be paying off and the shares have climbed by 77% over the last three years.

SEGRO is a real estate investment trust (REIT). This means it has to pay out 90% of its tax-exempt profits to shareholders in the form of dividends. SEGRO’s profits from lettings are fairly stable, as you’d hope, and generally rise with inflation.

The firm’s dividend payments have reflected this, rising by 2%-3% per year since at least 2009. In my view this attribute makes the shares a good long-term income buy, even at today’s fairly average 3.6% yield.

However, I’m not sure shareholders will see a repeat of the big capital gains of the last three years. SEGRO’s discount-to-book value has been erased and the shares now trade slightly above book value. This suggests to me that the stock is already fairly valued, unless the underlying value of its assets continues to rise.

Bargain… or bust

Lonmin’s recent $407m rights issue created 46 new shares for every one original share. This meant that shareholders who didn’t choose to participate saw the value of their stock fall by 98%.

However, this was Lonmin’s third rights issue since 2009. Only 70% of the rights were taken up. The remaining 30% were placed with the Public Investment Corporation of South Africa. This is a publicly-owned business, so Lonmin has effectively been part-nationalised.

Lonmin shares have fallen by about 40% since the rights issue shares began trading and are now worth about 0.7p. That’s around 80% less than the post-rights issue book value of 3.8p per share. This could be a serious bargain.

If Lonmin can deliver a successful turnaround, these shares could easily double or triple in value. However, there’s also a chance that Lonmin will finally fail, leaving shareholders with nothing.

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 of Tesco, Wm Morrison Supermarkets and SEGRO. The Motley Fool UK has no position in any of the shares mentioned. 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »