3 No-Brainer Buys? Diageo plc, Bellway plc And Admiral Group plc

Are these 3 stocks worth buying right now? Diageo plc (LON: DGE), Bellway plc (LON: BWY) and Admiral Group plc (LON: ADM)

| 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.

Shares in house builder Bellway (LSE: BWY) are up by over 3% today after the company released a strong set of full-year results. It sold a record number of homes last year, with the sale of 7,752 houses representing a 13% rise on the previous year’s figure. Furthermore, a focus on improved discipline towards investment has meant that Bellway’s return on capital employed has risen by 4.3% to 23.9%, with operating margins also increasing by an impressive 3.2%.

The result of this is net profit growth of 47.5%, which has allowed Bellway to increase dividends per share by 48%. And, looking ahead, the company expects that its strong forward order book should allow it to achieve volume growth of 10% in the current financial year.

Despite Bellway’s shares having soared by 322% in the last five years, there is still strong capital gain potential. They trade on a very cheap price to earnings (P/E) ratio of 9.7, which indicates that there is considerable upward rerating potential. And, with them yielding 3.4%, they remain a viable option for income seeking investors, too.

Similarly, motor insurance specialist Admiral (LSE: ADM) also appears to be a strong buy. Unlike Bellway, its industry is not enjoying the most profitable of periods, with the hike in insurance premium tax likely to cause its margins to come under pressure in the near term. And, with Admiral’s bottom line falling by 2% last year and forecast to drop by a further 3% this year, investor sentiment may remain weak in the coming months.

However, for longer term investors Admiral offers excellent upside. With the Bank of England not expecting inflation to reach 1% until spring 2016, it seems unlikely that interest rates will rise at a rapid rate. As such, Admiral’s yield of 6.3% remains extremely appealing and, with the company’s bottom line set to return to growth next year, investor sentiment could pick up in 2016.

Also offering an excellent long term income story is beverages company Diageo (LSE: DGE). It may only yield 3.2% at the present time but, as a mature business operating within a mature industry, it has the scope to pay out a greater proportion of profit as a dividend than is currently the case.

For example, Diageo presently pays out 65% of profit as a dividend and, while it needs some cash to reinvest for future growth opportunities, the relative stability of its business means that a higher proportion of profit could be handed over to the company’s shareholders in future. This, coupled with the excellent long term growth prospects for spirits in China, India and the rest of the emerging world, indicates that Diageo is a strong buy. And, with sector consolidation on the rise, Diageo remains a highly appealing bid target due to its wealth of leading spirits brands.

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.

Peter Stephens owns shares of Admiral Group and Bellway. 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.

More on Investing Articles

Investing Articles

Would Warren Buffett buy BP shares, as oil excitement grows?

Warren Buffett is a big investor in the oil business, and BP's performance has been attracting investor attention in results…

Read more »

Cropped shot of an affectionate young couple posing with a bunch of flowers in their kitchen on their anniversary
Investing Articles

Here’s how long-term loyalty to UK shares can lead to dazzling returns!

The most successful UK and US share investors buy shares to hold for the long term, as this report shows.

Read more »

Investing Articles

NatWest has just smashed brokers’ dividend forecasts!

After NatWest delivered a Valentine’s Day surprise to investors, our writer thinks the experts may have to raise their dividend…

Read more »

Investing Articles

The NatWest share price slips in early trading despite positive FY 2024 results. What’s the deal?

The NatWest share price is down slightly this morning after the bank released its final results for 2024. Our writer…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

My Legal & General shares have climbed just 7% — so how come I’m sitting on a 20% gain?

Harvey Jones' trading account is showing only a modest return on his Legal & General Shares, but on drilling down…

Read more »

Investing Articles

Prediction: the BP share price could rise in 2025 (or it might fall!)

Following this week’s release of the energy giant’s 2024 results, our writer reviews the prospects for the BP (LSE:BP.) share…

Read more »

many happy international football fans watching tv
Investing Articles

What’s gone wrong with the FTSE 100’s ‘King of Trainers’?

Feeling the pain of a 28% drop in the JD Sports share price over the past three months, our writer…

Read more »

Investing Articles

Is it too late for investors to consider buying these outstanding FTSE 100 shares?

Stephen Wright wonders whether now's the time to consider buying shares in the FTSE 100’s outstanding companies, despite some high…

Read more »