This week I’ve been looking at three of the most popular stocks on the London Stock Exchange. The three listed below have all been in the news this week, but should they be part of your portfolio?
Bellway (LSE:BWY) looks arguably one of the most undervalued housebuilders in London. After such a long bull run, many investors are reducing their exposure to housebuilders but I think Bellway offers a good return from today’s price. Tuesday’s final results were very strong and highlighted how solid the company is and the growth rate of the business. The dividend is up 48%, profit margins up 290 bps to 24.2% and earnings have risen to 231.5p a share. The PE ratio is only just above 9, which ranks in the top half of the construction and housebuilding sector and illustrates the undervalued nature of the stock. Another element to note is if there are any more delays in the inevitable interest rate rise then Bellway’s stock price should fly…
Tesco (LSE:TSCO) has a relatively new CEO in Dave Lewis (who recently invested in the company) and looks to have begun to turn a corner. Lewis is making the right moves so far and has been accepted well by the market. Shares have responded by rising up to today’s level, but Mr Lewis has a huge job ahead of him: with a PE ratio of 21 and 75p book value per share, the company looks expensive. This view looks to be shared with the City brokers, too, with an average recommendation of ‘hold’. However, Tesco Bank is a highlight, and customers are beginning to come back to the store after deserting it for discount brands. Although the company looks expensive, I think from here it is a good investment for the long term on the turnaround story.
Royal Mail (LSE:RMG) had big news this week that the UK government has sold its final shares in the company at 455p. However, I believe they have sold too soon and that the stock has been overlooked by the market. Royal Mail is very cheap at 450p, its PE ratio is just 13 and it has a solid dividend yield of over 4% with a dividend cover of 1.55. The dividend underpins the investment case, and for income-seeking investors this is a great stock to hold. Although the company faces headwinds from increased competition, this fear of competition has impacted the share price too much and there is a good return to be made.
All three stocks have strong bull cases but do face their own respective challenges, whether it’s increased competition from competitors or talk of raising interest rates. However, these three stocks have share prices that offer a good return if bought at these levels and held for the long term.
