All companies suffer setbacks or go through lean spells. The best of them bounce back, and resume their previous growth.
Today, you can buy shares in FTSE 100 blue chips Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US), BP (LSE: BP) (NYSE: BP.US) and BG Group (LSE: BG) at the same price, or lower, than five years ago. Is the time now ripe for investing in these three companies?
BG Group
Gas exploration success-story BG Group has suffered a bit of a wobble since October 2012. We’ve seen downward revisions to the short-term production outlook for various reasons; most recently — announced in results released last month — political and social instability in Egypt.
Nevertheless, BG remains a class exploration act with great assets around the world, and the longer-term picture looks bright. While earnings per share (EPS) are forecast to dip this year, analysts are expecting growth to get back on track, beginning with 81.3p in 2015. Ignoring the current year’s blip, BG is on a price-to-earnings (P/E) ratio of 13.5; historically, a high-teens P/E has been the norm when the company’s in the market’s good books.
BP
Adverse events don’t come more damaging for an oil company than a major oil spill. BP’s Gulf of Mexico rig blowout during 2010 caused the worst oil disaster in US history, leaving the company with mindboggling multi-billion-dollar liabilities.
While there isn’t quite clear water ahead yet, BP has come a long way towards putting the past behind it — including announcing earlier this month that it is once again eligible to enter into new contracts with the US government, including new deepwater leases in the Gulf of Mexico. BP’s shares trade on a ‘value’ single-digit P/E and offer a prospective dividend income of over 5%.
Tesco
The long growth record of UK number one and world number three retailer Tesco hit the buffers following a shock profit warning just over two years ago. The company had been over-milking its core UK business to fund international expansion, and is now in the process of getting home operations back on track.
Analysts are expecting annual EPS declines and a flat dividend to extend to three years, with growth only resuming modestly in the year ending February 2016. With the shares trading below £3, fears of a supermarket price war rampant, and over 40% of analysts rating Tesco a sell, it could be the time to be, in the words of legendary investor Warren Buffett, “greedy when others are fearful”. The P/E is just 10 and the potential dividend yield is over 5%.
