Are Meggitt plc, BT Group plc And Glencore PLC At Risk Of Major Corrections?

Should you avoid these 3 stocks? Meggitt plc (LON: MGGT), BT Group plc (LON: BT.A) and Glencore PLC (LON: GLEN).

| 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.

Today’s update from Meggitt (LSE: MGGT) shows that the aerospace and defence company is on track to meet full-year guidance. Encouragingly, the performance of the majority of the company’s divisions was positive, with civil aerospace revenue rising by 6% and military revenue increasing by 1%. However, weakness within Meggitt’s energy division persisted and its sales slumped by 15% during the period.

Meggitt has continued to make impressive progress with its cost reductions, with it being confident in achieving the targeted headcount reduction of 400 by the end of the first half of the year. And with Meggitt set to benefit from a stronger US dollar, its near-term outlook appears to be positive, which is a key reason why its shares have risen by 5% today.

Although Meggitt is in the midst of a challenging period, it seems to be performing relatively well. It trades on a price-to-earnings (P/E) ratio of just 12.5 and while there’s still some way to go before it returns to full health, the chances of a major correction appear to be relatively low. In other words, the potential rewards from investing in Meggitt seem to outweigh its risks for long-term investors.

Big change

Of course, Meggitt isn’t the only company enduring a period of significant change. BT (LSE: BT-A) is implementing an ambitious plan to integrate the recently acquired EE mobile network into its business while also investing heavily in its network and in a pay-TV offering. While all of this change is increasing the size of BT’s customer base and could lead to major cross-selling opportunities within the quad-play space, BT is at risk of disappointing the market if the pace of change is slower than anticipated.

Furthermore, BT isn’t the only company rapidly diversifying its offering, with the quad play space becoming increasingly competitive. This could hurt margins as price becomes a greater differentiator and with BT trading on a relatively high P/E ratio of 14.8, its rating could come under a degree of pressure. While this doesn’t mean that BT’s share price will fall heavily, it could fail to outperform the FTSE 100.

Transformation strategy

Meanwhile, Glencore (LSE: GLEN) continues to make progress with its transformation strategy that will see it reduce debts and improve its long-term financial outlook. This has been aided by the sale of the company’s agriculture unit stake for $2.5bn and the proceeds from this will go towards reducing the company’s net debt. And with Glencore forecast to increase its bottom line by 84% next year, its shares could soar – especially since it trades on a price-to-earnings-growth (PEG) ratio of 0.3.

However, with Glencore being heavily dependent on commodity prices for its profitability, a major correction can’t be ruled out if commodity prices slump. As such, Glencore remains a relatively high-risk play, although with generous potential rewards it may be of interest to less risk-averse investors.

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 owns shares of Meggitt. The Motley Fool UK has no position in any of the shares mentioned. 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 »