Why Diageo plc, Royal Mail PLC And AstraZeneca plc All Offer Explosive Bang For Your Buck!

Royston Wild explains why value seekers should check out Diageo plc (LON: DGE), Royal Mail PLC (LON: RMG) and AstraZeneca plc (LON: AZN).

| 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 stocks I believe offer terrific value at current prices.

Diageo

From a conventional standpoint, drinks giant Diageo (LSE: DGE) may not appear the most-attractively valued stock pick at the current time. The business sports a P/E ratio of 20.6 times for the 12 months to June 2016 — some distance above the benchmark of around 15 times that indicates attractive value — while a dividend yield of 3.2% lags the FTSE 100 average of around 3.5%

Still, I believe that current prices provide a great entry point to get in on Diageo’s hot growth story. The business is expected to put to bed the sustained earnings weakness of recent years with a 1% advance in 2016, and I expect the bottom line to light up further out as alcohol demand from emerging markets — not to mention the critical US market — rockets higher.

Diageo commented late last month that volumes had grown by mid single digits so far this year, and expects strong sales to offset the impact of adverse currency movements. The drinks giant divested its major wine businesses for $552m this week as it doubles-down on sales drivers like Smirnoff vodka and Johnnie Walker whisky. With Diageo ramping up innovation and marketing of these blue-chip labels, I believe earnings and dividends are set to surge.

Royal Mail

I am also extremely bullish on postal giant Royal Mail’s (LSE: RMG) long-term investment appeal. Thanks to the breakneck progress of e-commerce — thanks in no small part to improving UK consumer spending power — the company is enjoying solid demand for its parcel services, and a 3% volume advance in April-June underlines the strong momentum being enjoyed in this key market.

The demise of City Link late last year, combined with Whistl’s decision to bin its letters division, has boosted Royal Mail still further by giving the firm a stranglehold on the domestic mail market. And I am convinced the courier will not face harmful action from Ofcom’s subsequent competition investigation as the regulator will be reluctant to damage Britain’s postal service.

Huge restructuring costs at Royal Mail are expected to drive earnings 22% lower in the year to March 2016, although this still results in an attractive P/E ratio of 12.5 times. And this falls to 11.9 times for 2017 as a lower cost base and improving market conditions push earnings 6% higher. When you throw in predicted dividends of 21.7p for this year and 22.7p for 2017 — yielding 4.6% and 4.8% correspondingly — I believe Royal Mail is a great selection for value seekers.

AstraZeneca

Pills producer AstraZeneca (LSE: AZN) continues to be pounded by the effect of patent expirations across critical, sales-driving drugs. And this problem is not likely to disappear any time soon as more cost-effective, generic entrants take increasingly-large chunks out of labels like cholesterol-battler Crestor and stomach acid treatment Nexium.

AstraZeneca has seen earnings slide in each of the past three years thanks to this problem. But current projections suggest the Cambridge firm may be over the worst as its revamped product pipeline starts to offset the loss of these brands. Indeed, expected bottom-line slips of 1% and 4% for 2015 and 2016 respectively mark a vast improvement from recent years, and create decent P/E ratios of just 15.3 times for this year and 15.6 times for 2016.

And in the long-term I fully expect galloping healthcare demand from emerging regions to drive earnings at AstraZeneca firmly higher, facilitated by a transformed product line-up — the scientists expect to submit between 14 and 16 products for regulatory approval in 2015 and 2016 alone.

AstraZeneca is expected to keep the dividend on hold at 280 US cents per share through to the end of next year, levels that have been maintained since 2011. But these estimates still yield a market-busting 4.9%, and I expect rewards to take off again further out along with earnings.

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 has no position in any shares mentioned. 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

3 super-safe dividend shares I’d buy to target a £1,380 passive income!

Looking to maximise your chances of making a large passive income? These FTSE 100 and FTSE 250 dividend shares might…

Read more »

Investing Articles

I’ve just made a huge decision about my Scottish Mortgage shares!

Harvey Jones has done pretty well after buying Scottish Mortgage shares a year ago but the closer he examines the…

Read more »

Investing Articles

These top passive income stocks all go ex-dividend in October!

Paul Summers has been running the rule on some brilliant passive income stocks, all of which have ex-dividend deadlines coming…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing For Beginners

2 Warren Buffett-type stocks in the UK’s FTSE 100 index worth a look today

Warren Buffett likes to invest in high-quality companies. He also likes to buy when valuations are attractive and he can…

Read more »

artificial intelligence investing algorithms
Growth Shares

The next industrial revolution has begun. Here are 3 growth stocks at its heart

Edward Sheldon believes these three growth stocks will do well as the AI industry grows and the world becomes more…

Read more »

Investing Articles

Given the current economic climate, is there value to be found in UK penny stocks?

Our writer evaluates the prospects of two promising penny stocks on the London Stock Exchange. They each have a compelling…

Read more »

Investing Articles

With yields at 9%+, I expect even more from these FTSE 100 dividend stocks

I'd thought FTSE 100 yields might be declining by now, as the stock market starts to gain. Can these big…

Read more »

A young black man makes the symbol of a peace sign with two fingers
Investing Articles

2 risky shares for investors to consider buying

It’s important to consider what could go wrong when working out which shares to buy. But sometimes the potential rewards…

Read more »