Is it too late to buy GlaxoSmithKline plc, Glencore plc and Royal Bank of Scotland Group plc?

Royston Wild considers whether FTSE 100 (INDEXFTSE: UKX) surgers GlaxoSmithKline plc (LON: GSK), Glencore plc (LON: GLEN) and Royal Bank of Scotland Group plc (LON: RBS) can keep on rising.

| 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’m looking at the share price prospects of three FTSE 100 (INDEXFTSE: UKX) shooters.

Expect healthy returns

Medical ace GlaxoSmithKline (LSE: GSK) has taken off in the weeks following the EU referendum, the universal and evergreen nature of drugs demand making the firm a brilliant safe haven. Brentford’s drugs dynamo has seen its share price surge 20% since the vote. Still, I believe GlaxoSmithKline is a brilliant pick even at current prices.

Sure, a forward P/E rating of 17.7 times may nudge above the historical FTSE 100 average of 15 times.

But I reckon this still reflects great value given GlaxoSmithKline’s rejuvenated sales outlook — new product sales raced to £1.05bn during April-June, up from £821m in the prior quarter and £446m a year earlier. And the company has around 40 treatments in clinical trials to keep the top line moving higher.

And income seekers should be impressed by dividend yields — GlaxoSmithKline’s proposed 80p per share dividend through to the end of 2017 yields a peer-pasting 4.7%.

Commodities concern

Investors terrified by a severe downturn in the domestic economy have also flocked into commodities plays like Glencore (LSE: GLEN) in recent weeks.

The Swiss digger’s share value has gained 22% in value since the referendum. But I’m afraid to say I don’t share the market’s appetite for the Footsie’s energy and metals mammoths.

Latest Chinese customs data showed a decline in commodities imports during June, with demand for iron ore, copper and oil all dropping from the prior month. With global trade sagging and domestic consumption still failing to ignite despite continued intervention by the People’s Bank of China, I reckon inbound shipments should keep on flailing.

And Glencore’s huge P/E ratio of 37.5 times leaves plenty of room for a heavy retracement should critical demand indicators continue disappointing.

Banking problems

Financial colossus Royal Bank of Scotland (LSE: RBS) hasn’t fared as well since Britain’s decision to jettison itself from the EU. This is no surprise given its dependence on a healthy British retail banking sector, the fortunes of which are likely to suffer as recession looms.

Sure, the stock may have lost 25% from pre-referendum levels. But a huge bounce from July’s multi-year lows is unjustified, in my opinion — RBS is already struggling to generate healthy income levels following years of aggressive asset sales across the globe. And the firm’s half-year results scheduled for this Friday should illustrate its worrying revenues outlook once again.

RBS has already received a hefty dose of bad news this week. The Financial Conduct Authority announced it was extending its proposed cut-off date for new PPI-related claims by a year, to 2019. And European stress tests showed the bank’s CET1 capital ratio clock in at a meagre 8.1% under ‘adverse’ economic conditions.

I reckon a prospective P/E multiple of 17 times is far too high given the colossal hurdles RBS has to overcome to return to sustained earnings growth. I consequently expect the share to resume its downward momentum in the near future.

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 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.

More on Investing Articles

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 »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »