Today I am looking at the investment prospects of three London losers.
Royal Dutch Shell
It comes as little surprise that fossil fuel colossus Royal Dutch Shell (LSE: RDSB) has emerged as one of the worst performing stocks in 2015. Shares in the business have collapsed more than fifth in the past six months alone, with investor appetite for the business steadily eroding along with the oil price.
But I believe the worst could be far from over for the business. Shell printed a shocking $6.1bn loss during July-September thanks to tanking black gold prices and massive project cancellations, and I believe a worsening supply/demand imbalance should heap further pressure on the operator — indeed, OPEC announced today that inventories in developed economies currently stand some 210 million barrels above the five-year average.
Against this backdrop I believe it is difficult to justify investing in Shell, particularly as a predicted 40% earnings decline for 2015 alone creates a P/E rating of 14.3 times. I would consider a reading closer to the bargain watermark of 10 times to be a fairer reflection of Shell’s travails. And while a dividend yield of 7.1% may be tempting for some, an estimated payment of 188 US cents actually outstrips earnings. Given the firm’s huge debt pile and poor sales outlook, I reckon such projections are likely to miss wildly.
Standard Chartered
Emerging-market focussed Standard Chartered (LSE: STAN) has fared even worse than Shell during the course of the year and, despite a brief uptick in September, the business has sunk yet again and is currently trading around fresh decade-and-a-half lows. So far the bank has conceded 40% of its value in 2015, but I do not believe bargain hunters should be piling in just yet.
Standard Chartered was finally forced to clasp the nettle earlier this month and issue a $5.1bn rights issue to shore up its battered balance sheet. On top of this, the bank also introduced a swathe of restructuring measures, including the cutting of 15,000 jobs and a shake-up of its retail banking, wealth management and corporate banking divisions.
But these measures are nothing more than the first step on what is likely to prove a long, rocky road to recovery. Meanwhile Standard Chartered also faces Financial Conduct Authority probes into its anti-money laundering compliance, as well as its monitoring of sanctions, adding another layer of uncertainty to the bedraggled bank.
Thanks to predictions of a 42% earnings dip, Standard Chartered deals on a P/E rating of 13.5 times for 2015. Like Shell, I believe does not take into account the firm’s smashed finances and terrifying revenues outlook. And with the bank putting the kibosh on a final dividend for 2015, the business is hardly a red-hot pick for income seekers, either. I believe investors should steer well clear.
Taylor Wimpey
I am far more bullish concerning the investment case over at Taylor Wimpey (LSE: TW), however, and believe that value seekers can benefit from recent share price weakness at the firm. Britain’s chronic housing shortage has driven shares in the homesbuilder comfortably higher in 2015, although concerns surrounding future margin weakness has taken some of the shine off this advance — Taylor Wimpey has fallen 10% in the past week as a result.
But I believe this drop will prove nothing more than a short-term phenomenon. The Bank of England is likely to hold off on raising interest rates until well into 2016 at the earliest as the world economy struggles, while rising employment and increasing wage packets in the UK feed through to homebuyer affordability. And just today the Royal Institution of Chartered Surveyors (RICS) estimated that house prices are on course to rise by 4.5% per year until 2020 thanks to insufficient supply.
Against this backdrop I believe earnings and dividends should continue to surge at Taylor Wimpey. A 32% bottom-line advance is chalked in for 2015 alone, creating a very decent P/E ratio of 12.2 times. And a predicted dividend of 9.4p per share produces a gigantic yield of 5.2%. I believe the construction specialist provides plenty of upside at current prices.
