Why Vodafone Group plc, BAE Systems plc & Amec Foster Wheeler PLC Offer Amazing Value Today

Royston Wild explains why Vodafone Group plc (LON: VOD), BAE Systems plc (LON: BA) and Amec Foster Wheeler PLC (LON: AMEC) provide splendid bang for one’s buck.

| 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 London stocks I consider to be bona-fide, blue-chip bargains.

Vodafone Group

At face value Vodafone (LSE: VOD) may not be considered a true ‘bargain’ stock selection for value seekers. While it is true the mobile telecoms giant carries gigantic dividend yields — projected payments of 11.5p and 11.6p per share for the years to March 2016 and 2017 respectively produce yields of 5.5% and 5.6% — the business appears costly on a pure earnings basis.

The result of an anticipated 8% bottom-line fall in the present period results in a heady P/E ratio of 43.7 times, and although a 21% bounce is predicted for next year, Vodafone’s multiple still clocks in at a giant 34.3 times. The conventional benchmark that is widely considered ‘attractive’ value stands at 15 times prospective earnings.

Still, I believe Vodafone’s rapidly-improving earnings prospects more than justify these high valuations. Improving conditions in its critical European marketplaces — helped in no small part by the firm’s colossal organic investment and busy M&A activity — should continue to power its sales turnaround, while growing data demand across emerging regions like India cannot be underestimated. I reckon Vodafone is a brilliantly-priced long-term stock selection.

BAE Systems

With the business of war firmly back on the front pages, I reckon the sales picture over at BAE Systems (LSE: BA) is the strongest it has been for some time. The effect of Russian excursions in Ukraine and Syria is causing Western defence chiefs much apprehension, while the unrelenting march of ISIS, fears over Chinese expansionist measures, and fresh rhetoric from North Korea are also stoking fears of long-term geopolitical instability.

Such a backdrop naturally plays into the hands of weapons and security systems builders, and BAE looks poised to benefit from its top-tier supplier status with both US and UK armed forces. And the company’s cutting-edge technologies are also attracting rising demand from emerging regions, too, and BAE Systems clocked up £1.3bn worth of non-Western orders during January-June alone.

This increasingly-positive environment is expected to banish BAE Systems’ prolonged earnings bumpiness from next year onwards, with a 1% dip in 2015 expected to be followed by a 5% rise in 2016. These figures leave the weapons play dealing on P/E ratios of just 11.9 times and 11.3 times respectively. When you throw in projected dividends of 20.9p per share for 2015 and 21.6p for next year, yielding 4.6% and 4.7% correspondingly, I believe BAE Systems offers terrific value for money.

Amec Foster Wheeler

I reckon engineering giant Amec Foster Wheeler’s (LSE: AMEC) exposure to a wide variety of industries makes it a strong pick for bargain hunters. The company’s share price has endured a rocky ride since the summer as persistent emerging market fears — combined with subsequent demand concerns from the mining and energy sector solutions — have depressed investor appetite.

But the London-based company has flung its net far and wide, giving it terrific diversification in terms of both sector and geography, in turn removing an unhealthy reliance upon one segment. As a result Amec Foster Wheeler’s order book stood at a healthy £6.6bn as of the close of June, up £2.4bn from the same point last year.

The City currently expects Amec Foster Wheeler to report a 12% earnings decline in 2015, although this figure produces a P/E ratio of just 10.8 times, a figure I believe more than factors in headwinds from the oil and mining segments. And predictions of a 3% rise next year push the ratio to just 10.6 times. In addition, forecasts dividends of 42.9p per share for 2015 and 43.3p for next year create chunky yields of 5.4% and 5.5%.

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

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »

Investing Articles

If I’d bought Rolls-Royce shares a year ago, here’s what I’d have now

Rolls-Royce shares have been the big FTSE 100 success story of the past 12 months and more. And there's still…

Read more »

Young female analyst working at her desk in the office
Investing Articles

If the Dow’s heading for 60,000 by 2030, can the FTSE 100 index hit 12,000?

Strategist Ed Yardeni predicts a 50% rise for America’s Dow Jones Industrial Average over six years. Can the FTSE 100…

Read more »

Investing Articles

Is the National Grid share price a once-in-a-decade opportunity?

The National Grid share price looks like a bargain. But there’s much more for investors to think about than a…

Read more »

Investing Articles

Here’s why the Rolls-Royce share price should keep gaining!

The Rolls-Royce share price is up 185% over the past 12 months, but there are a host of tailwinds that…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Buying 1,852 shares in this ultra-high yield FTSE 100 income stock would give me £1k a year

Harvey Jones is keen to load up on this blue-chip income stock that pays the highest yield on the FTSE…

Read more »