If you’re stuck for ideas for where to put your cash as the FTSE flirts with all-time highs, look no further. Here are three great companies all currently trading at attractive prices.
Profit warning
After issuing two profit warnings in the space of six months, the market is not a fan of Petrofac (LSE: PFC). Indeed, as a result of these profit warnings, the company’s shares have underperformed the wider FTSE 100 by more than 10% during the past year.
Nevertheless, Petrofac looks attractive at current prices, even after adjusting for the lower profit forecast this year. In particular, Petrofac currently trades at a forward P/E of 10.7, a valuation lower than almost all of the company’s competitors.
However, this valuation is completely unreasonable as Petrofac is actually one of the oil service industry’s most profitable companies.
Specifically, Petrofac’s return on capital, a measure of profit generated in comparison to the company’s debt and equity, was reported at 18% for 2013. This return was more than three times higher than the average figure reported by the company’s main competitors.
What’s more, customers are lining up to make use of Petrofac’s services. The company’s project backlog at the end of the first quarter was up 24% year on year at $18.6bn.
Oversold
Rolls-Royce (LSE:RR) is another unloved company with many attractive qualities.
Sadly, Rolls has fallen out of favour with the market as it is currently being investigated by the Serious Fraud Office. Moreover, the company has just lost a £2.6bn engine order, after Emirates cancelled an aircraft purchase from Airbus.
Still, in the grand scheme of things, these two issues should not dent Rolls’ long-term outlook and the company looks like great value at current levels.
For example, after recent declines Rolls’ shares now trade at a forward P/E of 15.4, which looks cheap after taking into account the group’s order backlog. Indeed, at the end of 2013 Rolls’ order book stood at £72bn, up 19% year on year and booking in four-and-a-half years of revenue.
The loss of the Emirates order will take the order backlog down to £69bn; still a sizable sum.
Moreover, Rolls is cutting costs to widen profit margins and the company’s earnings per share have doubled during the past five years. Oh, and the company’s £1bn share buyback, announced today, should boost earnings per share by 5%.
A possible takeover
And lastly, J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US), which impressed the market to some degree when it reported that like for like sales only declined 1% during the first quarter. This decline may appear bad at first, but the grocer got off lightly compared to Tesco’s sales decline of 3.8% and Morrisons’ decline of 7.1%.
However, Sainsbury’s shares have slumped this year, falling 12% to date. This means that at present the company trades at a forward P/E of 11.1 and offers a dividend yield of 5.1%.
Additionally, Qatar still owns around a quarter of the company. Why’s this important? Well, as Sainsbury’s current market cap is £6.3bn but company has £9.8bn of property on the balance sheet, Qatar could be weighing up an opportunistic takeover approach.
