Royston Wild studies Meggitt plc (LON: MGGT), Intertek plc (LON: ITRK), BHP Billiton plc (LON: BLT), Wolseley plc (LON: WOS) and Anglo American plc (LON: AAL).
I have recently been evaluating the investment cases for a multitude of FTSE 100 companies.
Although Britain's foremost share index has risen 9.1% so far in 2013, I believe many London-listed stocks still have much further to run, while conversely others are overdue for a correction. So how do the following five stocks weigh up?
Meggitt
I believe that revenues in aerospace and defence play Meggitt (LSE: MGGT) are primed to take off due to rising exposure to the civil aerospace market. Turnover from this segment increased 7% in 2012 to £715 million, the company benefiting from its position as a major components supplier to the world's leading aircraft builders.
Meggitt announced just last month that it had signed a mammoth $175m contract with CFM International to provide thermal-management products for its LEAP engine variants, which will power the Airbus A320neo, Boeing 737MAX and COMAC C919 civilian-aircraft fleets.
Analysts expect earnings per share to rise 3% in 2013 before accelerating 9% in 2014, and Meggitt currently trades on a price-to-earnings (P/E) ratio of 13 and 12 for 2013 and 2014 respectively.
Although projected dividend yields come in below the 3.5% FTSE 100 average -- yields of 2.6% and 2.9% are expected this year and next -- the company has steadily increased shareholder payouts in recent years, and a dividend of 11.8p in 2012 is expected to rise to 12.6p and 13.8p this year and next.
Intertek
Product-testing specialist Intertek (LSE: ITRK) has showcased excellent resilience in recent years, posting strong double-digit growth despite ongoing travails in the global economy. However, I believe that highly elevated earnings multiples at present mean that solid growth projections appear to have been already priced in, leaving little upside for investors.
Intertek currently operates more than 1,000 laboratories covering some 100 countries, and whose operations encompass a vast spectrum of industries, which has helped to insulate it from weakness in individual markets. The firm also has strong exposure to a conglomeration of red-hot growth markets, while rising activity in emerging markets should also underpin future expansion.
Turnover jumped 17% in 2012 to £2.1 billion, the company announced at the start of the month, pushing pre-tax profits 19% higher to £308m.
Earnings per share are set to rise 14% in both 2013 and 2014, according to broker forecasts. However, the company currently changes hands on P/E multiples of 22.7 and 22 for these years, suggesting that strong growth rates are already factored into the current stock price.
BHP Billiton
I reckon that investors should steer clear of BHP Billiton (LSE: BLT) as a backdrop of volatile commodity prices, adverse currency movements and increasing output costs looks likely to keep the mining giant under pressure.
In particular, the company's crucial iron ore operations look set to experience increasing woes in the next few years as steady production ramp-ups and subdued demand push the market into heavy oversupply. As well, its metallurgical coal, aluminium and nickel businesses should also suffer from excess supply over the medium term at least.
City forecasters have pencilled in a 27% slide in earnings per share for the year ending June 2013, although a 29% upward bounce is expected in the following 12-month period. The firm currently changes hands on a forward P/E ratio of 12.5, which is anticipated to fall to 9.7 in 2014.
Total turnover fell 14.1% to $32.2 billion in the second half of 2012, BHP Billiton said in February, which pushed underlying earnings before interest, depreciation, taxes and amortisation 29.3% lower to $13.2 billion. While its end markets remain under severe pressure, I do not expect healthy growth to return any time soon.
Wolseley
Shares in plumbing and heating specialist Wolseley (LSE: WOS) have enjoyed steady upward momentum dating back to mid-2012, and struck fresh record peaks above 3,300p in recent days.
However, I believe that the firm looks severely overbought at current levels given deteriorating conditions in Europe. Like-for-like sales in France and the Nordic regions slid 8.2% and 4.8% respectively in July-October last year, the firm said in December. Furthermore, uncertainty over the US construction recovery due to government spending cuts could also crumple future earnings.
Analysts expect earnings per share to rise 9% for the year ending July 2013 before marching 19% higher in 2014, and Wolseley currently trades on a P/E readout of 17.9 and 15 for this year and next. But I believe that signs of escalating stress on global economic growth could put paid to these earnings forecasts and drive shares lower.
The company offers a very attractive dividend policy, with a dividend of 60p last year expected to rise to 69.3p and 82.2p in 2013 and 2014 correspondingly. However, these still only provide yields of 2.1% and 2.5%, well below the FTSE 100 average.
Anglo American
Like fellow miner BHP Billiton, I am convinced that Anglo American (LSE: AAL) is likely to experience strong earnings pressure moving forwards owing to deteriorating fundamentals in the iron ore market. Almost half of the group's earnings emanate from the steelmaking ingredient.
Allied to this, Anglo American is also highly susceptible to lasting labour-related turbulence across its diverse mining operations in South Africa, and from where it continues to scale back operations.
The firm -- which boasts diamond, platinum, iron ore, manganese and thermal-coal operations throughout the country -- experienced fresh strike action at its Kleinkopje coal mine and Rustenburg, Union and Amandelbult platinum assets in recent months.
Earnings per share are forecast to advance 4% in 2013 before igniting 18% next year. And P/E projections of 11.3 and 9.5 would, on the face of it, appear to offer good value for money. However, Anglo American's is allocated a cheap rating for a reason, and I expect earnings to face continued attack moving forwards.
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> Royston does not own shares in any of the companies mentioned in this article.
