Why The Smart Money Is Buying Imperial Tobacco Group PLC, JD Wetherspoon plc And CRH PLC

Royston Wild explains why Imperial Tobacco Group PLC (LON: IMT), JD Wetherspoon plc (LON: JDW) and CRH PLC (LON: CRH) are all brilliant stock candidates.

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Today I am looking at three shares reporting today that I believe carry exceptional investment potential.

Imperial Tobacco Group

Cigarette giant Imperial Tobacco (LSE: IMT) has cheered the market following an excellent trading statement and shares were recently dealing 3% higher on Wednesday. Trading conditions remain difficult as reduced demand — combined with adverse currency pressures — has pressured turnover, and net tobacco revenues slipped 4% at constant currencies during October-March, to £2.9bn.

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However, the release confirmed the terrific progress Imperial Tobacco is making with doubling-down on its Growth Brands, the likes of which include John Player Special and Davidoff. Net revenues and volumes of these labels leapt 15% and 12% during the half year, and these cartons now make up 59% of group sales, up from 52% a year ago.

The formidable brand power of these cigarettes is essential for Imperial Tobacco to ward off the effect of changing consumer habits, not to mention reduced consumer spending power, across the globe. And with the business charging into the e-cigarette market, and emerging market off-take remaining resilient, the City expects Imperial Tobacco to follow a marginal earnings increase for the year concluding September 2015 with a chunky 5% rise in fiscal 2016.

These figures push a P/E multiple of 16.1 times prospective earnings for this year to 15.4 times next year, just above the watermark of 15 times which represents decent value. Meanwhile, expected dividends of 140p and 156.8p per share for 2015 and 2016 correspondingly produce appetising yields of 4.3% and 4.9%.

JD Wetherspoon

Beer house Wetherspoons (LSE: JDW) has also gained in midweek business and was last 4.1% higher on the day. While it is true that supermarkets continue to take a chunk out of the chain’s top line — like-for-like sales clocked in at 1.7% during February-April, slowing from 4.5% in the first half of the year — margins continued to improve and the operating margin registered at 7.5%.

And the bartender is planning to keep expanding to take the fight to the supermarkets — the firm, which operates more than 900 pubs, plans to unveil a further 30 outlets next year after opening a similar number this year.

The calculator bashers expect Wetherspoons to record a 2% earnings dip in the year ending July 2015, although a 2% rebound is anticipated in the following 12 months. And the bottom line is predicted to expand by a more convincing 12% in fiscal 2017.

As a result a P/E ratio of 16.1 times for the current year slips to 15.6 times for 2016, and again to 14.2 times the following year. And Wetherspoons’ progressive dividend policy is also expected to crank into life again from next year as the balance sheet improves, and estimated payments of 12.2p per share for 2016 and 12.6p for 2017 create handy — if not rip-roaring — yields of 1.6% and 1.9%.

CRH

I believe that building materials specialist CRH (LSE: CRH) is in great shape to enjoy resplendent earnings growth in the coming years as construction activity across North America and Europe clicks through the gears. Indeed, the business announced today that it expects EBITDA to surge around 10% for January-June before picking up during the latter half of the year.

Shares have failed to ignite following the news, however, and CRH was recently dealing 1.1% lower in Wednesday trading. But I reckon the market is missing a trick here, particularly as the prospect of further exciting M&A activity — such as the planned purchase of assets from Holcim and Lafarge — drives revenues skywards. Indeed, the City expects earnings to expand 102% in 2015 and by a more modest 31% the following year.

These figures drive a P/E multiple of 21.2 times for this year to a vastly-improved 16.2 times for 2016. And with predicted dividends of 63.7 euro cents and 67.7 cents per share chalked in for 2015 and 2016 correspondingly, in turn producing yields of 2.6% and 2.7%, I believe CRH offers very decent bang for one’s buck.

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Royston Wild owns shares of Imperial Tobacco Group. 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.

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