Blue-chip Barclays (LSE: BARC), mid-cap Ocean Wilsons (LSE: OCN) and smaller company Goodwin (LSE: GDWN) are all unloved by the market right now.
However, from their current depressed valuations, these three stocks have the potential to re-rate considerably higher when market sentiment improves. Their shares could soar.
Barclays
Barclays’ progress since the financial crisis has been disappointingly slow. Recovery has not been helped by wrongdoing and scandal. Of all the banks, Barclays seems to have been most successful in turning “shooting yourself in the foot” into an art. Restructuring has dragged interminably, and staff morale is reportedly low.
Investor sentiment is low, too. For example, while investors are currently prepared to pay £1.52 for every £1 of Lloyds‘ assets, they’re only willing to pay 97p for every £1 of Barclays’ assets. Of course, Lloyds is presently making more profit from its assets than Barclays, but the relative valuations indicate the size of the potential re-rating, if Barclays can really get its act together.
Even as things stand, Barclays is rated on a current-year forecast price-to-earnings (P/E) ratio of a modest 12, falling to just 10 for 2016. Furthermore, P/E-to-earnings growth (PEG) readouts of a mere 0.4 and 0.5 for the two years are well on the value side of the PEG “fair value” marker of 1. The recent arrival of John “Mack the Knife” McFarlane as Barclays’ executive chairman could speed up a re-rating of the shares, which are currently trading at under 280p.
Ocean Wilsons
Ocean Wilsons’ current difficulties are not of its own making. The group’s investment division holds a diversified portfolio of international investments, and continues to perform perfectly satisfactorily, but the group’s major asset is a subsidiary called Wilson Sons, which controls a maritime services and logistics company in Brazil.
Some of the Brazilian businesses are performing robustly but, with operations that include container terminals and offshore oil support services, the company is facing headwinds from softer export demand, the low oil price and reduced industrial activity — as well as an adverse impact from the strength of the US dollar against the Brazilian Real.
Ocean Wilsons’ shares were at an all-time high of over £14 a few years ago, and were above £12 as recently as last year. They’re presently changing hands for less than £9. On a current-year forecast P/E of 13.5, falling to 10.5 next year — and PEG ratings of 0.2 and 0.4, respectively — there’s scope for a substantial re-rating of this well-run company’s shares.
Goodwin
Small-cap engineer Goodwin is another company that has been impacted by the collapse of the oil price. In its annual results, released last weak, the directors reported a substantial contraction in order placing activity in the oil and gas engineering market sector. Weakness in Goodwin’s mechanical engineering division was partially offset by strong growth in its smaller refractory engineering division; but, nevertheless, group revenue was down 3% and pre-tax profit down 17% year on year.
Goodwin’s shares reached a high of over £41 last year, but are currently trading at under £25. This is another well-run business, and its directors’ commentaries should win an award for succinctness and plain English. The numbers, too, are presented with admirable transparency: warts and all; no adjusted this and adjusted that.
No City analysts are covering Goodwin, and the company doesn’t seem to bother with the paid-for “research” notes that many small companies seem to think are a good use of shareholders’ funds. The trailing P/E is a modest 12, and the previous year’s earnings, which give a P/E of just 9.5, demonstrate the potential for a re-rating of the shares when earnings growth returns in due course.
