These Footsie stocks have collapsed in 2016. Is it safe to buy back in?

Royston Wild considers the share price prospects of two FTSE-listed losers.

| 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.

sdf

June’s decision to exit the referendum has proved a nightmare for Dixons Carphone’s (LSE: DC) share price.  The electronics store was already trading at a discount to levels at the start of 2016, but the referendum result has really put the boot in — it’s currently down 36% since the end of last year.

The retailer has bounced from July’s record lows, however, as bargain hunters have piled in. And there is certainly some logic behind this — Dixons Carphone is expected to generate earnings expansion of 4% and 6% in the years to April 2017 and 2018, respectively, creating corresponding P/E ratios of 10.5 times and 9.9 times. The FTSE 100 forward average stands closer to 15 times.

Dividend yields are less inspiring, however, but figures of 3.2% for 2016 and 3.5% for next year are far from shoddy.

Regardless of Dixons Carphone’s attractive  ‘paper’ valuations, I think there is plenty of reason to expect earnings estimates to miss their targets in the near-term and beyond.

The company gave investors reason for optimism in September, advising that like-for-like sales rose 4% during May-July. But sales are in danger of slumping further down the line as difficult economic conditions, including rising inflation, crimp investor appetite for big ticket items like fridges and televisions.

And Dixons Carphone also faces increased margin pressure as diving sterling values prompt electronics manufacturers to hike prices. Apple raised the ticket value of its MacBook last month, firing the starting gun for other suppliers to also hike costs.

I believe that the risks far outweigh the possible rewards at Dixons Carphone.

Screen star

But the retailer isn’t the only FTSE 100 stock in danger of enduring further share price weakness. Indeed, I reckon the negative impact of June’s referendum on advertising budgets also leaves ITV (LSE: ITV) in danger of fresh share price weakness — the business has already lost 40% of its value in the year to date.

Having said that, ITV’s long-term earnings outlook is much more robust than that of Dixons Carphone, in my opinion. And I reckon now represents a great time to latch onto the broadcasting behemoth.

Earnings are expected to more-or-less flatline through to the close of 2017. Still, current forecasts create P/E ratings of just 10 times and 10.1 times for 2016 and 2017, respectively. And dividend yields of 4.5% for this year and 5% for 2017 crush the FTSE 100 average yield of 3.5%.

Despite the impact of moderating advertiser appetite, I think ITV’s long-term investment case remains robust. Revenues from the firm’s ITV Studios production arm continue to sing — these exploded 31% during January-June, to £651m — and international expansion promises to keep sales on an upward keel.

And I am backing ITV’s ability to consistently outperform the wider television advertising market to stop earnings falling off a cliff in the medium term. I reckon the company’s proven expertise across media channels gives plenty of reason for investors to remain optimistic.

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 Apple. The Motley Fool UK has recommended ITV. 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

Road 2025 to 2032 new year direction concept
Investing Articles

Up 909% in 3 years! Can Rolls-Royce shares carry on climbing?

Nothing good lasts forever, although Rolls-Royce shares are giving it their best shot. Harvey Jones wonders when they will finally…

Read more »

Woman riding her old fashioned bicycle along the Beach Esplanade at Aberdeen, Scotland.
Investing Articles

3 techniques to turbocharge your SIPP for a richer retirement!

Christopher Ruane considers a trio of ways he thinks an investor could use to try and grow the long-term value…

Read more »

ISA coins
Investing Articles

With a £20,000 Stocks and Shares ISA, here’s how someone could make £762 each month in passive income

A well-invested Stocks and Shares ISA might rise in value due to share price growth -- but it can also…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Just released: our 3 top small-cap stocks to consider buying in June [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

I asked ChatGPT which stocks will be promoted to the FTSE 100. Here’s what it said!

Each quarter, stocks are promoted to or relegated from the FTSE 100 index. ChatGPT reckons these UK shares are ones…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

How many Legal & General shares must an investor buy to earn £1k of monthly passive income?

Harvey Jones calculates how much passive income someone could earn by taking a big position in one of the FTSE…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

If I couldn’t touch my ISA or SIPP for 10 years, I’d be happy owning these super stocks

Edward Sheldon has been analysing his ISA and pension stock holdings. And he believes these two companies will still be…

Read more »

Businessman with tablet, waiting at the train station platform
Investing Articles

7% yields and low P/E ratios? These 2 cheap shares look promising!

The FTSE All-share is a great place to hunt for cheap shares, in my opinion. I've uncovered two top dividend…

Read more »