Why Rolls-Royce Holding plc, BHP Billiton plc and FirstGroup plc may be great recovery prospects

Are Rolls-Royce Holding plc (LON: RR), BHP Billiton plc (LON: BLT) and FirstGroup plc (LON: FGP) save havens for your post-Brexit money?

| 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.

If you’re the kind of contrarian investor who looks for recovery prospects and searches for good ones to buy when everyone is selling, well the EU referendum has given you a whole load more candidates to choose from! Today I’m looking at three that were already down, and wondering if they’re even better bargains now.

No Brexit problem?

I said last week that Rolls-Royce Holdings (LSE: RR) shares could be hurt if we voted to leave the EU, after the company’s bosses wrote to employees to point out the difficulties that could lie along exit route and that it would put a lot of the firm’s investment decisions on hold.

But the vote went the wrong way (for the company, based on those fears), and… nothing happened. In fact, since the close of play on referendum day, Rolls-Royce shares have actually picked up by about 3% to 665p, leaving the price up 28% from its 2016 low point in February. Full-year results provided part of this year’s boost, with the company talking of its growing order book and sounding upbeat about its turnaround prospects.

There’s going to be a big drop in earnings this year for sure, but analysts are predicting a strong EPS recovery in 2017 with the firm’s slashed dividend set to return to progressive increases. There’s a 2017 P/E of 20 suggested, but if it really is the start of the recovery that could be good value.

Digging dirt

The mining sector is one I’d expect to be pretty resistant to things like the UK’s EU membership — they just dig up the stuff and sell it internationally at the open market rate. And it does seem that way as shares in BHP Billiton (LSE: BLT), for example, dipped but quickly recovered. At 874p they’re actually up since the momentous day. In fact, it’s the kind of movement that can barely be seen against the usual ups and downs in the price.

Since their low in January, BHP shares are now up 45%, even though prices of metals and minerals haven’t really started a recovery yet. But with oil on the way back up and the latest Chinese figures looking better than expected, we could well be near the low point in the commodities demand cycle.

There’s no uptick in earnings for BHP Billiton expected until 2017, but it should be a solid resurgence if the analysts are right.

Transport on the mend

FirstGroup (LSE: FGP), which runs rail and bus services in the UK and school bus and other services in the US, should also be pretty impervious to any adverse effects from uncertainties over the EU single market, I’d have thought. But surprisingly, the shares are down 10% since the event, to 92.6p.

FirstGroup’s results posted a couple of weeks ago appeared to cement the company’s turnaround, which it has been pursuing since a rights issue was needed in 2013. With “significantly increased cash generation expected in 2016/17,” and forecasts putting the shares on a P/E of only around 7.5 for the current year, dropping to 6.5 on March 2018 predictions, I just don’t see how FirstGroup can not be a great recovery candidate. That’s especially so as those figures give us PEG vales of only around 0.4 to 0.5, and there’s a recovering dividend expected to yield 4.5% by 2018.

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.

Alan Oscroft 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

Young black man looking at phone while on the London Overground
Investing Articles

Investing £3.33 into an ISA every day from 22 could result in a £60,000 passive income

Millions of Britons use the Stocks and Shares ISA as a way to build wealth and generate an income. However,…

Read more »

Investing Articles

2 resurgent cheap shares that could skyrocket in 2025

Cheap shares can take our portfolios to the next level. Here, Dr James Fox highlights two stocks that appear to…

Read more »

Investing Articles

How much does an investor need in a Stocks and Shares ISA to earn £1,000 a month in passive income?

A Stocks and Shares ISA's a valuable asset for investors. Not having to pay dividend tax can be a big…

Read more »

Investing Articles

9% dividend yield! Could buying this FTSE 250 stock earn me massive passive income?

Assura looks like an outstanding stock for dividend investors to consider. But is the 9% dividend yield the passive income…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Why I think this month could be critical for the Lloyds share price!

Our writer explains why he thinks the bank's 2024 results will have a significant impact on the short-term direction of…

Read more »

British Pennies on a Pound Note
Investing Articles

This former penny share has soared 168%. Is the best yet to come?

When Christopher Ruane saw a penny share as a potential bargain last year, he was spot on. So having not…

Read more »

Mature couple at the beach
Investing Articles

£20k in an ISA? Here’s how it could generate £1 of passive income every hour — forever

With a long-term approach, Christopher Ruane explains how an investor could aim to earn a pound per hour in passive…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: overpriced or still a bargain?

Christopher Ruane reckons a storming FTSE 100 performance of late doesn't tell us much about whether there are still possible…

Read more »