Have Royal Bank of Scotland Group Plc, AstraZeneca Plc, And Home Retail Group Plc Been Oversold?

Are shares of Royal Bank of Scotland Group Plc (LON: RBS), AstraZeneca Plc (LON: AZN) and Home Retail Group Plc (LON: HOME) set to rebound?

| 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.

While the FTSE 100 has largely recovered from a shaky start to 2016, Royal Bank of Scotland Group (LSE: RBS) has continued to underperform the index by a staggering 14% since the New Year. Just when RBS appeared ready to move on from years of restructuring and write-offs to return to profit, management announced last week several billion pounds of additional fines and payments would make 2015 the eighth year of losses in a row. Despite this bad news, the shift to a domestic-focused retail bank is going well with risk-weighted assets (RWAs) falling a further 3% in Q3 and capital buffers have been built up sufficiently to allow a return to dividend payments a full year ahead of schedule.

RBS continues to shed non-core assets such as its private banking arm and completed selling its final stake in the US Citizen’s Bank, further reducing RWAs and shoring-up capital ratios. While there will undoubtedly be further pain ahead for the bank in regards to further restructuring costs and regulatory fines in the US, management has done an admirable job of cleaning up the balance sheet and setting the stage for a return to growth at the state-backed lender. I wouldn’t be calling the bottom for shares yet, but with return on equity at the go-forward bank a solid 13%, there’s obviously room to grow for the group once it’s done cutting out non-performing divisions. With shares trading a price/book ratio of 0.27, compared to 0.91 at much healthier Lloyds, RBS looks like a high-risk, high-reward share that merits further investigation.

The Sainsbury factor

Argos and Homebase parent Home Retail Group (LSE: HOME) shares fell 4% on Friday when it was revealed that negotiations with J Sainsbury about the grocer’s takeover bid weren’t progressing as smoothly as shareholders hoped. With the £340m sale of DIY chain Homebase already lined up, Home Retail Group will be a largely-Argos-driven share if the Sainsbury’s deal doesn’t go through. Argos’s latest results saw same-store sales down 2.2% over the holiday period and full-year profits are expected to be towards the bottom of the already-downgraded £92m to £118m range. With earnings per share half of what they were five years ago and competition from the likes of Amazon not going away any time soon, I would certainly be hoping for the Sainsbury’s deal to go through if I were a shareholder.

Acquisition trail

AstraZeneca (LSE: AZN) has fully embraced the manic pace of acquisitions roiling the pharmaceutical industry and announced or completed some $7bn worth of deals in the final two months of 2015 alone. This shopping spree is necessary to refill the drugmaker’s pipeline as US patents on blockbuster drugs Nexium and Crestor, which account for 35% of revenue, expire by the end of this year. An ambitious target of increasing revenues by well over 50% to $40bn by 2023 will require continued acquisitions and increased R&D spend, which accounted for an estimated 20% of revenue this past year. Shares are certainly not cheap at 17 times 2016 forecast earnings, and the heavy capital expenditure necessary to meet revenue targets makes me view other pharma giants such as GlaxoSmithKline or Shire as more appealing options.

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.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. 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

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »