Will Diageo plc, IGAS Energy PLC And Booker Group Plc Soar In 2016?

Are these 3 stocks ‘screaming buys’? Diageo plc (LON: DGE), IGAS Energy PLC (LON: IGAS) and Booker Group Plc (LON: BOK)

| 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.

Diageo’s (LSE: DGE) share price performance in 2015 has been rather disappointing, with the alcoholic beverages company posting a decline of 1% since the turn of the year. This, though, is still better than the FTSE 100’s fall of 8% year-to-date and shows that even though Diageo’s short term performance is rather poor, investors are still positive about its long term potential.

In fact, Diageo has reported a 14% fall in earnings over the last two years and is expected to deliver a rise of only 1% in its bottom line in the current year. This is hugely disappointing, since in previous years Diageo had reported double-digit net profit growth, while many of its index peers were struggling to offer any positive growth numbers.

However, with a slowdown in emerging markets, notably China, Diageo’s financial performance is taking a hit. In the long run, though, it has huge growth potential, since earnings among the emerging world’s workforce are set to rapidly rise over the coming years and, following on from this, demand for consumer goods such as premium alcoholic drinks is forecast to increase.

With Diageo being well-positioned to take advantage of this trend, its price to earnings (P/E) ratio of 20.5 still holds considerable appeal, even though 2016 may not be a stand-out year for the company’s shares.

Meanwhile, cash and carry operator Booker (LSE: BOK) has continued its strong share price performance from previous years into 2015. Its valuation has risen by 7% during the course of the year and, with its bottom line set to increase by 7% in the current year and by a further 13% next year, Booker has become a highly reliable growth company.

This, though, appears to be fully reflected in the company’s valuation. For example, Booker trades on a P/E ratio of 24.8 and while this translates into a price to earnings growth (PEG) ratio of 1.8, Booker’s shares still appear to be rather fully valued.

Certainly, a pull-back could bring them into buying territory over the medium term but, as things stand, Booker does not appear to be a highly appealing buy at the present time. That view is further evidenced by a yield of just 2.2%, which indicates that there are better options elsewhere for long term investors.

Shares in IGAS Energy (LSE: IGAS) have soared by as much as 50% today despite there being no news releases made by the company. The shale gas specialist’s share price has been relatively volatile of late, following the release of its half-year results. Although they showed a widening of its losses versus the comparable period from last year, there were major impairments of goodwill and assets which, while having the potential to continue in an oil price environment, mean that the headline financial numbers do not fully reflect the progress being made by the company.

Looking ahead to 2016, IGAS Energy is upbeat regarding the prospects for shale gas. The company is delivering on its five-year plan and, with a relatively high cash balance, appears to have the financial resources through which to become a profitable entity in the long run.

However, its future is highly dependent upon the UK’s responsiveness to using shale gas and, with the oil price continuing to fall and there being the scope for further impairments, it appears to be a stock to watch, rather than buy, at the present time.

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.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Booker. 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

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

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 »