Are these 3 stocks set to turn round a disastrous 2016?

These stocks have had a miserable year the burning question is whether 2017 will be any better, says Harvey Jones.

| 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.

Investing isn’t just about picking winners, it can also be about picking losers as well. Provided you find the right kind of loser, in other words, one that is ready to launch a fightback. The following three companies have all been on the ropes… can they come out swinging next year?

Capita idea

Outsourcing specialist Capita Group (LSE: CPI) spent most of 2016 drifting slowly downwards until late September, when it suddenly crashed. The culprit was a profit warning, which management blamed on a slowdown in some areas, one-off costs and client hesitation. Its share price has almost halved in just six months to hit a 10-year low.

Investors found succour in Neil Woodford, who, after visiting the company, declared that the market reaction “disproportionate”, but the company’s contract issues will take time to resolve, while its debt pile will continue to rise, on course to hit 2.7 times EBITDA. Bargain seekers may be tempted by its valuation of just 7.7 times earnings and forecast dividend of 5.8%, nicely covered 2.1 times. Earnings per share (EPS) may fall 7% this year but are forecast to rise 3% in 2017, which appears to confirm Woodford’s positive report. Capita looks tempting but beware HSBC’s warning of “high financial gearing, declining sales and a weak growth outlook”. It is also vulnerable to Brexit shocks.

INTU the night

Retail park specialist INTU Properties (LSE: INTU) has done relatively well compared to Capita, its share price down just 16% over the last year. Investors were left deflated by warnings of a slowdown in rental income growth in last month’s Q3 results, but the other numbers looked more positive, with footfall up 1.2% in the UK and 2% in Spain, occupancy rate above 95%, and 67 new long-term leases (61 in the UK and 6 in Spain) for a total of £13m in new annual rents.

So far British shoppers have shrugged off Brexit but Wednesday’s GFK consumer confidence survey showed a five point drop in November, taking it to minus eight. Black Friday disappointed while higher inflation next year could inflict further damage. EPS are forecast to be a positive 3% this year and 2% in 2017. However, the forecast 5.1% yield is covered just 1.1 times, so given its forward valuation of 18.3 times earnings I will do my Christmas shopping elsewhere.

RBS, SOS

Finally, to the mother of all horror stories, Royal Bank of Scotland Group (LSE: RBS), whose problems seem to magnify the further we get from the financial crisis. Today saw another grim tale, as RBS was the only one to fail the 2016 Bank of England banking stress test. There was some good news buried in the report, because the regulator was testing for a worst-case scenario and approved the bank’s remedial action to improve its resilience to financial stocks

Market reaction was relatively muted, the stock is down just over 2% at time of writing, because most RBS investors are braced for bad news. The restructuring and capital position building will continue, and at some point RBS will be a great recovery play — one day. It is tempting at 6.75 times earnings but still only for speculators, or very VERY long-term investors.

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.

Harvey Jones 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 mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »