Is it time to sell Associated British Food (LSE: ABF), Rolls-Royce (LSE: RR.) or Unilever (LSE: ULVR)?
If you're reading this, you probably own one or more of the following three shares:
Their common feature? They're all blue chips with share prices flirting with all-time highs.
Here are the details compared to the FTSE 100 (UKX).
| | All-time high | Recent price | Gain required to reach all-time high |
|---|
| Ass Brit Food | 1,295p | 1,294p | <0.1% |
| Rolls-Royce | 890p | 861p | 3% |
| Unilever | 2,334p | 2,274p | 3% |
| FTSE 100 | 6,930 | 5,813 | 19% |
I'm sure long-term shareholders of all three companies will be chuffed with their gains right now. But as always with shares, prices can race ahead of reality and sometimes it can pay to bank your winners while the going is good.
Let's have a quick look at the trio to see if any profits need to be taken:
Associated British Food
The sugar and retail conglomerate has enjoyed a good recession, with sales up 63% and adjusted operating profits up 48% between 2007 and 2011.
Progress during 2012 has been encouraging, too, with strong sugar prices and good sales at Primark helping year-to-date revenues advance 11%. The performance has prompted ABF to expect "substantial growth" in profits for the current year.
Brokers translate this optimism into earnings of 87p per share, up 18% on 2011, which equates to a price-to-earnings (P/E) ratio of 15. In comparison, statistics on Bloomberg indicate ABF's forecast P/E reaching a five-year high of 17.5 during 2007.
Although the ABF's current P/E rating is towards the top end of its range, the firm's upbeat comments suggest to me the share price could be justified.
Rolls-Royce
The aerospace group has performed well during the downturn, with sales up 50% and adjusted earnings per share up 43% between 2007 and 2011.
Progress during 2012 has been positive, too, with further sales of Trent engines helping first-half earnings per share advance 11%. The performance prompted Rolls to expect "good growth" in underlying revenue and profit for the current year.
Brokers translate this confidence into earnings of 58p per share, up 19% on 2011, which equates to a P/E of 15. For perspective, statistics on Bloomberg indicate Rolls' forecast P/E reaching a five-year high of almost 16 during 2011.
Similar to ABF, although the Rolls' current P/E rating is towards the top end of its range, the firm's upbeat comments suggest to me the share price could be justified.
Unilever
The consumer-goods powerhouse continued to progress during the banking crash, with sales up 16% and pre-tax profits up 18% between 2007 and 2011.
This year's efforts have been pleasing, too, with greater sales to emerging markets supporting a 4% profit gain during the first half. The achievement prompted Unilever to expect a "modest improvement" in its core operating margin for the full year.
Brokers translate this confidence into earnings of about €1.56 per share, up 10% on 2011, which equates to a P/E of 19. In comparison, statistics on Bloomberg indicate Unilever's forecast P/E reaching a five-year high of nearly 20 during 2007.
With Unilever's current P/E rating at top end of its range, I'm not 100% convinced the firm's progress this year justifies the share price. If I were a holder, I think I might bank some profits.
More all-time highs
One long-term investor whose shares have also done well of late is Neil Woodford, the head of investments at Invesco Perpetual and one of the smartest blue-chip investors in the City.
In fact, on a dividend re-invested basis over the 15 years to 31 December 2011, Mr Woodford has delivered a return of 347%, versus the FTSE All-Share's distinctly more modest 42% performance.
Helping drive that performance has been a substantial position in British American Tobacco (LSE: BATS), which has been hitting fresh all-time highs throughout 2012.
Mr Woodford's other favourite holdings -- and the investing logic behind them -- are profiled in "8 Large-Cap Income Shares Held By Britain's Super Investor", a special report that is exclusive to The Motley Fool.
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> Maynard does not own any of the shares mentioned in this article.
