The Motley Fool

Why I’d sell Centrica plc and this value stock

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.

For a supposedly defensive company, Centrica (LSE: CNA) has taken a beating recently. On top of a 50% fall in the share price over the last five years, investors also suffered a dividend cut in 2014 and have yet to see an increase. 

The unloved shares now trade on a lowly forward P/E of 10.5 and offer a 7% yield. Could now be the time to buy? 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

I’d say not, given the pressure on the core business. According to CEO Ian Conn, there are now 25 energy suppliers in the UK and 15 switching websites. It is easier than ever for customers to hunt for better deals and there are more companies competing on price than ever before. 

As a result, total customer account holdings in the UK fell 2% in the first-half of this year. That’s not a huge decline by any stretch, but I’m averse to investing in a declining business just for yield and I don’t see competition calming down any time soon. 

Further to this, the company has switched strategies a number of times in recent years. Its most recent flip-flop is the swing from heavily investing in, to downsizing, its oil exploration and production business after the oil price crash a few years ago. 

The resulting asset sale has admittedly strengthened the balance sheet, knocking 22% off of net debt, which now stands at a still sizeable £2.9bn, but surely long-term shareholders will be frustrated with the mismanaged venture. 

The threat of political intervention still hangs over the shares too. Theresa May reiterated her intention to cap energy prices at the Conservative party conference earlier this month and that has the potential to be bad news for Centrica. 

I prioritise a stable strategy and steer clear of potential political intervention when selecting dividend payers, so I wont be adding Centrica to my portfolio in the near future.

Volatile value stock

CareTech Holdings (LSE: CTH) is another value stock I’ll be steering clear of. It provides specialist social care including people with various learning disabilities, eating disorders and behavioural issues. A noble cause to be sure, but one that might not generate excellent shareholder returns in the long run.

The company negotiates its fees with local authorities on a yearly basis. The inability to set their own prices increases the chance that costs might outgrow revenues and I fear the highly politicised nature of healthcare services could lead to their exceptional profit margins being crimped deliberately in the future. 

Perhaps I’m too bearish on the stock. The specialist nature of the care provided helped the company achieve a near-20% operating margin in the first half of this year and perhaps means there are fewer competitors. The company also reported a good set of results today, including 93% occupancy levels in the mature estate and a net increase of 215 places available.

Perhaps the forward P/E of 12 shows the market is uncomfortable with the company’s significant net debt levels, which fell slightly to £147.2m over the period. 

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Zach Coffell has no positions in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.