Is it time to buy GlaxoSmithKline plc, Centamin plc and Sage Group plc?

Bilaal Mohamed asks whether it’s the right time to buy GlaxoSmithKline plc (LON: GSK), Centamin plc (LON: CEY) and Sage Group plc (LON: SGE) or are prices too high?

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Today I’ll be discussing the outlook for pharmaceutical giant GlaxoSmithKline (LSE: GSK), enterprise software specialist Sage Group (LSE: SGE), and gold miner Centamin (LSE: CEY). Is it the right time to invest in any of these companies?

Gold miner losing lustre

Egypt-focused gold miner Centamin has seen its shares almost double since the start of the year climbing from 62p in January to 113.50p at yesterday’s close. Analysts have taken note of the pricier valuation with a couple of brokers issuing downgrades in the past few days. Market consensus expects Centamin to report a 33% rise in underlying profits to £91m for the full year to December, before falling back to £81m in 2017.

Centamin trades on 14 times forecast earnings for this year, rising to 16 times for the year ending December 2017. The shares have historically traded on much lower single-digit P/E ratings reflecting the risks of operating in the region, and so the shares are beginning to look expensive. Existing shareholders might want to take profits at this time, while new investors should stay on the sidelines and wait for a better entry point in the medium term.

Computer says no

Enterprise software specialist Sage Group updated the market recently with interim results for the six months to the end of March. The software giant reported a 15.6% drop in pre-tax profits to £142m, compared to £168m for the same period a year earlier. Revenues rose to £747m, a 4% improvement from £717m in 2015, but this was offset by exceptional costs of £31m relating to the company’s business transformation strategy.

Sage’s shares have performed well recently, rising 11% during the last six months, and are starting to look expensive compared to historical levels. Indeed steady growth is expected to continue with earnings set to rise 7% and 10% over the next couple of years. But trading on 22 and 20 times forecast earnings for this year and next shows the growth is more than priced-in. Furthermore, with prospective dividend yields below 3% I think neither value investors nor income seekers will find Sage appealing at the present time.

Not for profit

Pharmaceutical giant GlaxoSmithKline has revealed that an antiseptic gel developed jointly with Save the Children has been granted a positive scientific opinion from the Committee for Medicinal Products for Human Use of the European Medicines Agency.

The antiseptic gel for the treatment of newborn umbilical cord infections will be offered at a not-for-profit price after local regulatory approval in low-income countries. At current levels Glaxo offers investors a prospective dividend yield of 5.7% and 5.6% for the next two years, and remains a popular choice with income seekers with a low appetite for risk.

The verdict

Centamin has had a good run in recent months and is starting to look pricey. Profits are expected to shrink next year, and investors should wait for a return to earnings growth and a more favourable valuation before buying a slice of this quality gold miner.

Sage Group is currently trading on a premium rating, especially when compared to historical levels, and without a strong dividend to tempt income seekers, I think investors can certainly find better opportunities elsewhere.

Glaxo is an appealing income play for long-term investors looking for stability from a low-risk defensive stock, and remains attractive as a core holding in a diversified portfolio.

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.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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