Why I’ve Bought G4S Plc

G4S plc (LON:GFS) – a contrarian play on the global boom in outsourcing.

| 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.

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.

A new week brings a new buying opportunity. This is a contrarian play with great growth potential.

Security firm G4S (LSE: GFS) has suffered a series of crises — quite simply, things have not been good. First there was last year’s Olympics fiasco, which led to the resignation of chief executive Nick Buckles. Then there was the recent tagging scandal, where the firm was thought to have over-charged the government for criminal offender tagging contracts by tens of millions of pounds.


The mood music is awful, and it seems no investor at the moment will touch this business with a bargepole.

But let’s put this in some kind of perspective; let’s see the big picture. This is a company with 620,000 employees in 125 countries. Only Walmart and Foxconn employ more people globally.

In an organisation such as this, which is the size of a city, there will inevitably be crises and scandals. But over the long term, seen in the round, this is still a successful company with a bright future.

The company’s “Barclays moment”

This firm’s difficulties remind me of another company that has had its share of strife and negativity: Barclays (LSE: BARC) (NYSE: BCS.US).

Last year, Barclays was mired in the LIBOR rate-fixing scandal, engulfed in and overwhelmed by this crisis, which cost chief executive Bob Diamond his job. The share price crashed, and no one would dare invest in the company.

Fast forward a year and the bank’s share price has more than doubled. The LIBOR scandal seems all but forgotten, and Barclays is powering ahead. The storm of scandal has blown over, and now all we see is clear blue sky and sunshine.

A strong contrarian buy

The share price of GFS has crashed by a third (over a billion pounds) in just a few months. In my view, this is an over-reaction. The fundamentals of this company are still good.

As governments around the world reduce costs, they will outsource more and more of their work. The outsourcing trend means that companies such as GFS, Serco and Capita are canny investments. GFS is considerably cheaper than its rivals.

It isn’t often you see a business with a P/E ratio of just 11 that is steadily growing and has great long-term prospects. I rate this company a strong contrarian buy.

Foolish final thought

Are you planning ahead to your retirement? Would you like to invest in shares which will form the basis of your retirement portfolio? Then look no further than our ‘5 Shares You Can Retire On’.

This free report has been put together by our investing experts to help you achieve just that — it is a compilation of some of the best growth and value shares around.

> Prabhat owns shares in G4S and Barclays, but in none of the other companies mentioned in this article.

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.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Why the FTSE 250 looks an incredible bargain

While all the attention is on the elite FTSE 100, the mid-cap FTSE 250 index looks unbelievably cheap. I don't…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

Here’s my plan to make the most of juicy UK shares ahead of 2024 and beyond!

Our writer reckons there hasn't been a better time to snap up quality UK shares. She explains how she's planning…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

Here’s how many Lloyds shares I’d need to buy for a £100 monthly income!

Offering a higher dividend yield than the average across FTSE 100 stocks, are Lloyds shares worth buying for passive income…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Up 27% in 2023, what next for the Tesco share price in 2024?

The Tesco share price has had a great 2023, rising 27% while the FTSE 100 was flat. But what might…

Read more »

Hand is turning a dice and changes the direction of an arrow symbolizing that the value of an ETF (Exchange Traded Fund) is going up (or vice versa)
Investing Articles

FTSE 250? No, I’d buy this index fund instead

Investing in index funds can be a profitable enterprise. Our author has been exploring the different options to determine the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

This 4% yielding FTSE 100 giant is dirt-cheap and perfect for passive income!

Looking for a mammoth business with shares trading at discount levels and offering an excellent passive income opportunity? Our writer…

Read more »

UK money in a Jar on a background
Investing Articles

Here’s how I’d use dividend shares to try and turn £5,000 of savings into passive income of £900 a year

With dividend shares at today’s prices, Stephen Wright thinks there are two ways to turn a £5,000 investment into something…

Read more »

Investing Articles

After a recovery that Lazarus would have been proud of, is the easyJet share price worth a look?

With its dividend restored and its balance sheet repaired, the easyJet share price looks like a bargain. But Stephen Wright…

Read more »