Glencore (LSE: GLEN), Rolls Royce (LSE: RR) and Pearson (LSE: PSON) have been some of the worst performing shares in the FTSE over the last year. Does this mean that the shares are worth a look for 2016? For any contrarian investors looking for returns next year these three offer fantastic entry prices at the moment and could reward the brave.
Glencore
To put it simply Glencore has had a terrible year. Shares have crashed down to 86p from over 300p. This has been due to the global commodity prices crashing down to decade lows. Debt levels are dangerously high but the company are aiming to reduce the net debt level to around $18bn by the end of 2016. The company are also increasing asset sales in an effort to use cash to pay down debt, there will be up to $4bn in asset sales. Glencore have some good assets that remain profitable at these depressed commodity prices and over time I would expect this value to shine through in terms of the share price.
Rolls Royce
Rolls Royce like Glencore has had a tough year. The company has released profit warnings which have pushed the share price lower and it could easily continue into 2016. Earnings will be heavily down this year and next year too so large fund managers are now trimming positions in the stock. Neil Woodford the UK’s most popular fund manager has sold his entire holding in Rolls Royce. He stated that “it is now likely that the dividend will be cut in 2016. This has shaken my confidence in the investment case and so the position has been sold across all mandates”. As a well respected and followed investor Mr Woodford’s words worry many private investors that hold stock.
Pearson
Pearson has also been under pressure this year with profits falling sharply and the sale of many of its leading brands such as the FT and Economist have dented cashflows. The company still yields over 6% which is backed up by a healthy 1.3 dividend cover. It has been a challenging couple of years for Pearson, the education publishing market is becoming increasingly competitive. To make matters worse US college admissions are falling which is having a knock on effect to cash flow. However, there are many bullish analysts out there and the 2016 forward looking PE is a reasonable looking 11.3. The dividend is also expected to rise next year which adds further weight to the investment case.
Overall the three shares here offer reasonable ‘contrarian’ bets and may well recover much of the share price declines through 2016. Each faces major problems but for any investors willing to take a chance, they could reap the rewards in years to come. Investing in high yielding companies like Pearson will also provide investors with a stable income as well as offer scope for growth. The FTSE 100 is full of companies paying big dividend and investors that re-invest the dividends will benefit from compound interest well into the future.
