3 Bear Market Bargains? ARM Holdings plc, Burberry Group plc And NEXT plc

Can ARM Holdings plc (LON:ARM), Burberry Group plc (LON:BRBY) and NEXT plc (LON:NXT) protect your cash and deliver a profit?

| 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.

Warren Buffett famously said that one of the secrets to making big profits from stocks was to avoid losing money.

In today’s article I’ll highlight three companies I believe could help you to protect your capital and deliver decent profits in a bear market.

NEXT

Shares in high street fashion favourite NEXT (LSE: NXT) have fallen by 19% from £80 to £65 since the start of December. It seems to have been a victim of the general market sell-off and of concerns over slower sales growth. However, I suspect this sell-off may have been slightly overdone.

The shares now trade on 15 times forecast earnings and offer a prospective yield of 5.2% for 2015/16, including special dividends. The fall in the share price has also enabled NEXT to start buying back its own shares.

Unlike most firms, NEXT sets a maximum price for buying back its own shares. This is an approach also used by Warren Buffett and ensures cash isn’t wasted on buybacks when it could be used more profitably elsewhere. The current limit is £69.62.

The buyback policy has delivered stunning returns for shareholders. In my view, if NEXT is willing to buy its own shares, they may also offer good value for investors.

ARM Holdings

ARM Holdings (LSE: ARM) is getting steadily cheaper. The group’s P/E ratio has fallen steadily in recent years and the shares now trade on a forecast P/E of around 30. Although that might seem pricey, I think it’s justified considering that ARM’s earnings per share have risen by an average of 42% per year since 2009.

City forecasts indicate that ARM is expected to report earnings of 30p per share this year, a 66% rise in last year’s earnings of 18p per share. Earnings are expected to rise by another 14% in 2016, pushing the forecast P/E down to 27.

ARM is fantastically profitable, with an operating margin of about 40%. It also has a bulletproof balance sheet, with no debt and net cash of £690m. Although the 1% dividend yield isn’t very appealing, I believe ARM’s sales are likely to continue growing. In my view this is one of the safest stocks in the FTSE 100.

Burberry

Will China’s stock market meltdown affect spending on luxury goods? There’s clearly a risk that it will, but the evidence so far is quite reassuring. In a trading update last week, Burberry Group (LSE: BRBY) said that Chinese sales returned to growth during the last quarter.

Upmarket spirits firm Rémy Cointreau also said this morning that Chinese sales had grown strongly during the last quarter. This suggests to me that the outlook for Burberry may be quite sound, especially as the stock is much cheaper than it used to be.

Burberry’s share price has fallen by 40% from the peak seen last February. The stock now trades at a level last seen in 2012. However, Burberry’s current sales and profits are around 35% higher than they were in 2012.

The group’s operating margin has averaged an impressive 18% since 2010, and Burberry has net cash and almost no debt. The shares currently have a 2015 forecast P/E of about 15 and offer a yield of 3.2%.

In my view, Burberry could be a smart buy, with decent downside protection and an attractive yield.

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.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and Burberry. 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

Young Caucasian man making doubtful face at camera
Investing Articles

When will Shein hit the UK stock market and should I invest?

With Shein looking likely to list on the London stock market in 2024, this writer weighs up the case for…

Read more »

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »