Should You Buy This Month’s FTSE 100 Fallers? Tesco PLC, Meggitt plc & Admiral Group plc

tesco2The FTSE 100 may have moved sideways over the last month, but many of the index’s members have seen much bigger moves.

Three of the biggest fallers have been defence and engineering firm Meggitt (LSE: MGGT), motor insurer Admiral Group (LSE: ADM) and supermarket giant Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US), whose share price recently touched a ten-year low.

Every little helps

If — like me — you are a Tesco shareholder, you may be wondering whether the firm’s stock has bottomed out yet.

My view is that the risks of further falls are fairly evenly balanced: when new boss Dave Lewis takes the reins in October, I expect to see Tesco’s profit margins fall and perhaps a dividend cut — all of which would see the shares fall close to the 200p mark, as I explained recently.

On the other hand, if Mr Lewis can regain investors’ confidence, the Tesco’s shares could perform more strongly. Overall, I’m still a buyer of Tesco, but I wouldn’t be surprised to see the supermarket’s share price fall a little further yet.

Meggitt’s profit warning

Shares in Meggitt fell heavily on August 5, after the firm warned that full-year revenues would fall below expectations, due mainly to weak military sales.

However, it wasn’t all bad: the firm’s interim dividend was hiked by 8% and its order backlog rose slightly to £782.7m, maintaining its 1.1 book-to-bill ratio, which means it is booking new sales faster than it is billing for completed orders — a good sign of a growing business.

Overall, I’m positive about Meggitt, but with a 2014 forecast P/E of around 14, I don’t think the firm’s shares are cheap enough to compensate for the real risk of another profit warning later this year. In my view, Meggitt is one for the watch list.

Admiral’s risk

admiral.2Motor insurer Admiral has been a top performer in recent years, thanks partly to its generous special dividend policy.

However, the shine has come off Admiral’s shares recently, as falling car insurance premiums have led to a 9% fall in first-half revenues — and caused the firm to miss market forecasts for its first-half profits.

Admiral is on my sell list at the moment, because I fear that the firm’s bumper prospective yield of more than 7% could be cut dramatically if price pressure continues — shareholders should remember that Admiral’s ordinary dividend yield is just 3.5%.

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Roland Head owns shares in Tesco. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.