Should I Invest In Direct Line Insurance Group PLC, Mountview Estates plc And Shire PLC Now?

Can Direct Line Insurance Group PLC (LON: DLG), Mountview Estates plc (LON: MTVW) and Shire PLC (LON: SHP) still deliver a decent investment return?

| 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.

Direct Line 2Although the share price of Direct Line Insurance Group (LSE: DLG) has eased back with the market in recent weeks, the longer-term trend seems to be up.

And why not? After all, the underlying business seems to be doing well.

Cyclical recovery?

Before emerging as a separately listed company during 2012, Direct Line made underwriting losses in the wake of the global financial crisis. The firm returned to underwriting profit during 2012, and built on that improvement in 2013. The current year seems to be going well too, but we’ll learn more with the third-quarter interim management statement due on Friday 31 October.

Fluctuating profits reveal the firm’s inherent cyclicality. The financial companies, such as insurers, can see wild share-price fluctuation as profits ebb and flow. That’s why the firm’s valuation bothers me a bit. The forward dividend yield is running at about 7.7% for 2015, and City analysts expect forward earnings to cover the payout just over 1.2 times.

That’s seems a too-good-to-be-true kind of yield, and the thin cover from earnings makes it look vulnerable if earnings start to slip. Is the market trying to tell us that it expects forward earnings to decline soon?

Property-linked investing

Where do you think UK property values are heading? It’s another highly cyclical investing game to play, but if you want to get involved, without all the inconvenience of rolling your sleeves up and actually buying bricks and mortar, you could invest in a property firm such as Mountview Estates (LSE: MTVW).

I love the simplicity of the way the firm describes its activities on its own website: Mountview Estates P.L.C. is a Property Trading Company.  The Company owns and acquires tenanted residential property throughout the UK and sells such property when it becomes vacant.”            

This is a what-you-see-is-what-you-get investment proposition, with potential hidden value on the balance sheet, and high insider ownership by the controlling family. The firm records properties at cost, implying the market value of assets is in excess the company’s 7740p share price. But I think we should be careful, because the share-price chart is peaking where it did in 2007 — just before the last financial crash.

Make no mistake, if property values fall, so does Mountview’s share price — potentially a long way. The firm is cyclical to the very core.

Pharmaceuticals

FTSE 100 drugs firm Shire (LSE: SHP) (NASDAQ: SHPG.US) stands out among its London-listed peers for its fast-growing credentials. The firm is best known for the attention deficit disorder treatments Adderall and Vyvanse, and is a young, high-energy upstart founded in 1986 and listed on the stock market as late as 1996.

City analysts following the firm expect earnings to grow by 28% this year and by a further 10% during 2015. Yet the shares took a steep dive during October when US operator AbbVie Inc (NYSE: ABBV.US) walked away from a takeover deal.

The shares’ valuation looks more attractive now than for a long time, with the forward P/E rating  running at about 18 for 2015.

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.

Kevin Godbold has no position in any 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

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

2 recession-resistant UK stocks I’d buy and hold for a decade!

Our writer details two UK stocks she believes could still continue to perform well in a recession and not feel…

Read more »

Back view of blue NIO EP9 electric vehicle
Investing Articles

Down 31% this year! Is now the moment to buy NIO stock?

NIO stock has moved sharply downwards in the past couple of months. Christopher Ruane likes the business potential -- but…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 dividend stocks I reckon could grow payouts for years to come!

This Fool is looking for dividend stocks and explains why these two picks could be primed to grow their payouts…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Should I buy, sell, or hold my Rolls-Royce shares at £3.50?

This Fool considers what he should do with his Rolls-Royce shares following the FTSE 100 company's excellent full-year results last…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

With a spare £280, here’s how I’d start buying shares this March

Our writer reflects on what he has learnt on the stock market to explain how he would start buying shares…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Are these expensive FTSE 100 stocks actually brilliant bargains?

Paul Summers takes a closer look at two FTSE 100 stocks that could recover strongly in time, despite already carrying…

Read more »

Investing Articles

What might the recent Aviva share price performance tell me as an investor?

Christopher Ruane looks at how the Aviva share price has performed over the past 12 months and considers whether he…

Read more »

Investing Articles

Down by a quarter, is the BT share price a steal?

The BT share price has more than halved in the past five years. What is holding it down -- and…

Read more »