Should You Hit The Sales At ARM Holdings plc, GKN plc And Weir Group PLC?

Royston Wild looks at the investment prospects of ARM Holdings plc (LON: ARM), GKN plc (LON: GKN) and Weir Group PLC (LON: WEIR).

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Today I am looking at three downtrodden FTSE darlings that could be poised for a sizeable bounceback.

ARM Holdings

Microchip builder ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) has been one of the largest FTSE 100 fallers during the past month, the stock having given up a hefty 10% since the middle of June. But with shares now at their lowest since January I fully expect bargain hunters to charge in.

It is certainly true that slowing premium smartphone demand in Western markets remains a concern — both Samsung and HTC have sounded sales warnings in recent months, while fears of tablet PC saturation is adding to ARM Holdings’ woes. Still, the relentless march of gadget heavyweight Apple is helping to assuage fears of a hard revenues landing for the Cambridge firm, while diversification into the hot networking and servers market is also beginning to pay off.

Consequently the City expects ARM Holdings to record earnings growth of 73% and 20% in 2015 and 2016 correspondingly. While P/E multiples of 32.5 times for this year and 27.5 times for next year may not be the most attractive readings pick in town, PEG numbers around the value benchmark of 1 through to the close of 2016 underline ARM Holdings’ decent price relative to its growth potential.

GKN

Like ARM Holdings, shares in engineer GKN (LSE: GKN) have suffered torrid time during the past four weeks, the company having dived 11% to eight-month troughs during the period. While slowing car demand has cast doubts over the Redditch firm’s top line — the China Association of Automobile Manufacturers cut its 2015 growth forecast to 3% from 7% previously this month — I believe the long-term fundamentals of this market remain as strong as ever.

Indeed, I reckon a backcloth of rising populations and personal affluence levels in developing markets should drive motor sales through the roof in the years ahead, while improving economic conditions in Europe and North America should keep unit sales ticking higher, too. On top of this, GKN’s top-tier supplier status for the likes of planebuilding giants like Boeing and Airbus should also power revenues higher amid improving profitability across the airline sector.

Current headwinds in major markets are expected to push earnings 9% lower in 2015, although a 9% recovery next year should herald steady growth further out. These projections leave GKN changing hands on ultra-cheap P/E ratios of 11.8 times and 10.7 times for these years — well below the watermark of 15 times that indicates stellar bang for one’s buck — while projected dividends of 8.9p per share for 2015 and 9.6p this year produce handy yields of 2.8% and 3%.

Weir Group

Unlike the firms I have mentioned above, I am not so optimistic over the long-term prospects for pump builder Weir (LSE: WEIR). The stock has fallen 14% since mid-July, hitting its cheapest since autumn 2012 in the process. And I fully expect prices to keep ploughing lower as weak commodity prices slam demand for the Scottish firm’s mining- and oil-related products.

The Brent crude benchmark slipped to within a whisker of $56 per barrel just last week and, with support finally broken following months of floating around $60, fears are growing that prices could plummet once again in the coming months. With the West edging closer to a deal with Iran over the country’s nuclear programme, fresh amounts of supply could wash into the market. Meanwhile, the latest Baker-Hughes data last week showed the number of rigs operating in the US begin to rise once again.

As a result the analysts expect Weir to endure a third successive earnings dip in 2015, this time to the tune of 33%. Such a figure leaves the business changing hands on a P/E rating of 16.6 times, hardly catastrophic on paper but unjustifiable in my opinion given the obvious lack of growth drivers. With the business nursing a huge debt pile in excess of £860m, and revenues set to slack for some while yet, I also believe a prospective dividend of 45.2p per share — yielding some 2.8% — can be taken with a pinch of salt.

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.

Royston Wild owns shares of GKN. The Motley Fool UK has recommended ARM Holdings and Weir. 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

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »