Today I am looking at the investment prospects of four recent stock-market laggards.
Unilever
Household goods giant Unilever (LSE: ULVR) saw share prices fall off a cliff in August thanks to waning confidence in emerging market growth. Stocks have recovered some ground since, but last week’s 1% dip suggests that investors remain nervy over the firm’s growth prospects. I am not one to share those concerns, however, as spending in these regions continues to improve and the stellar brand power of labels from Dove soap to Walls ice cream keeps revenues chugging higher.
Unilever’s latest results showed underlying sales in developing nations surge 6% during April-June, speeding up from 5.4% in the prior three-month period. These factors are expected to deliver earnings growth of 9% and 6% in 2015 and 2016 correspondingly, leaving the business dealing on P/E ratios of 19.5 times and 18.3 times for these years. I consider these values to be good value given the quality of the stock and Unilever’s exceptional growth potential.
Whitbread
Investor appetite for hotel and cafe operator Whitbread (LSE: WTB) took a hit last week after the firm warned of the impact of next April’s ‘living wage’ on profits. The business lost 1% during the past seven days after advising that it would be forced to implement various measures, including “some selective price increases” in order to offset the effect of rising staff costs.
Although this is quite rightly a valid concern for Whitbread’s bottom line, I believe the growing popularity of its Premier Inn budget hotels and Costa Coffee cafe chains still makes it a compelling stock pick — the business saw underlying sales in these outlets rise 5.3% and 4.6% respectively during February-July. Consequently the number crunchers expect Whitbread to enjoy earnings growth of 13% in both fiscal 2016 and 2017, driving a P/E multiple of 19.3 times for this year to just 16.9 times for 2017.
Sports Direct International
Sports pumps and tracksuit play Sports Direct (LSE: SPD) has seen its spectacular share ascent grind to an abrupt halt more recently, and the business shed 4% of its value during Monday-Friday. However, I reckon this provides a little more reason to opportunistic investors to plough in as a combination of store expansion in the UK and abroad, not to mention the enduring popularity of labels like Lonsdale and Karrimor, keep the tills ringing.
Of course Sports Direct faces the same pressure regarding staff costs as Whitbread. But I believe that improving conditions in the UK High Street should keep the bottom line streaking steadily higher. This view is shared by the City, and growth of 12% for fiscal 2016 and 14% for 2017 is currently anticipated. The retailer’s P/E ratio subsequently falls from 17.5 times for the current period to a very-attractive 15.3 times for 2017.
Shire
Medicines play Shire (LSE: SHP) saw spritely market sentiment dribble away during the course of last week, and the business saw its value fall 1% as a result. The business was left disappointed last month after its $30bn takeover attempt for fellow biotech play Baxalta was rebuffed, but rumours are currently circulating that the British company will return with an improved proposal imminently.
Shire estimates that any tie-up between the two entities would result in $20bn worth of product sales by 2020. But even without any accord I believe Shire’s terrific pipeline, supported by rising healthcare demand across the globe, should provide exceptional long-term earnings expansion. And so do the City’s boffins — Shire is expected to bounce from a predicted 33% slide this year to punch a 16% advance in 2016. These figures drive a P/E ratio of 19.7 times for 2015 to a far-improved 17.2 times for next year.
