Are The Bears Right About Blue-Chip Fallers Glencore plc, G4S Plc, Tesco plc, Standard Chartered plc & Burberry Group plc?

This Fool looks to profit from the FTSE’s biggest fallers: Glencore plc (LON: GLEN), G4S Plc (LON: GFS), Tesco plc (LON: TSCO), Standard Chartered plc (LON: STAN) and Burberry Group plc (LON: BRBY).

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Today, I’m taking a look at five of the biggest fallers that belong to the FTSE 100. The questions I’ll be posing are:

  • Has the fall been overdone?
  • Are they set for a recovery?

Starting from the biggest faller, Glencore (LSE: GLEN), I’ll be looking at the forces at play pushing the share prices of these stocks south, with a view to answering the above questions.

Firstly, let’s look at the chart to see where we stand currently:

As we can see, all five stocks have underperformed a sinking FTSE 100, but are these falling knives that should be caught? Let’s take a closer look…

Digging new lows

Formerly known as Glencore Xstrata, Glencore is a Switzerland-based natural resource company. Like most of its peers, the company has seen commodity prices sink, with its share price in hot pursuit.

As is the case with other players in the sector, management are doing what they can to cut costs; however, there is only so much they can do. Analysts are becoming more negative on the stock, too. Earnings expectations for the year ending 31/12/15 have fallen from US$0.50 expected in August 2014 to just under $0.20 currently – that’s just enough to cover the expected dividend.

However, help might be at hand as one of America’s most influential activist investors has reportedly amassed a £250 million stake in the mining giant. Harris Associates, headed by David Herro, has built the position in the world’s largest commodities trader – what his intentions are, we don’t know, but the move could signal that there is some hidden value within.

Protecting your investment?

Another FTSE laggard was G4S (LSE: GFS). The blue-chip security provider saw its shares slide following broker downgrades. Analysts expect tough competition within an ever-changing marketplace going forward.

Again, we can see that earnings expectations have been cut, albeit by around 2 pence per share to 15 pence per share. This places the shares on a rather lofty 17 times forecast earnings for 2015.

With net debt of over £1.6 billion, this is one company that I’ll be avoiding, despite the higher-than-market median yield on offer.

Every little helps?

Not a day goes by without questions being asked about the seismic changes currently taking place in the grocery sector.

One of the worst performing stocks of last week was Tesco (LSE: TSCO). Indeed, most of the sector was under pressure as investors reacted to the possibility of Amazon wading into the market with its Amazon Fresh offering. Investors were also rattled by reports that possible bids for its Dunnhumby data analysis arm would be much less than previously expected.

I’m afraid that this is one share that I can’t get excited about. Whilst there may be value hidden within this business, I believe that it needs to fix its balance sheet – quickly. At the same time as fighting a price war in the UK that is not going to go away any time soon, coupled with issues across its international business. I can see these shares getting much cheaper if its fortunes take a turn for the worse.

Bank on us?

Shares in the emerging market-focused bank Standard Chartered (LSE: STAN) have been on the slide following its interim results. Investors weren’t expecting such sharp fall in profits and earnings, in addition to the dividend being halved.

For me, the CEO, Bill Winters said it all:

“Today’s results show the Group has some very real challenges, but they are fixable and it is important to remember that there is a strong business at the heart of the Group. The newly announced Management Team, together with all of our staff, are determined to get the Group back on track.”

The shares currently look interesting; however, I suspect we will see considerable earnings and dividend downgrades. I’ll be looking to see the dust settle before considering this share any further.

On the sale rail?

Export stocks with exposure to China took a beating last week, as investors worried about a slowdown in demand. Luxury goods retailer Burberry (LSE: BRBY) was hit along with other stocks with exposure to the Chinese economy, which some fear is in for a hard landing.

Indeed, the company noted that there was a further deceleration in Hong Kong, a challenging luxury market, when it gave its first quarter update last month, whilst sales in mainland China grew by low single-digit percentage. That said, revenue was up by 8% on an underlying basis with double digit growth in EMEIA, led by France, Italy and Spain in particular.

Whilst there is a lot to like about this company, I remain cautious. Again, we can see that brokers have been busy reducing their earnings estimates for the company, but even that would not have the same effect as a realisation of the Chinese economy hitting a rough patch – for now, they are not for me.

So, what’s the verdict?

Here we have five businesses that have suffered more than others over recent weeks. And while some have fallen quite heavily in recent times, I believe that this hasn’t been overdone enough to give me an adequate margin of safety, Indeed, I believe that they could all fall further should sentiment turn bearish, particularly where China is concerned.

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.

Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. The Motley Fool UK owns shares of Tesco. 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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