3 Stocks Offering Staggeringly Poor Value: BP plc, ARM Holdings plc And Weir Group PLC

Today I am looking at three FTSE-listed firms which I believe offer disappointing bang for one’s buck.


Fossil fuel giant BP (LSE: BP) (NYSE: BP.US) has been forced to hit the alert button repeatedly in recent months as a result of the tanking crude price. The company saw full-year profit slump to $12.1bn last year from $13.4bn in 2013 as revenues dived and exploration write-offs increased. Accordingly BP slashed its capex budget to $20bn for this year from a previous guidance of $24bn-26bn in order to safeguard the balance sheet.

However, current City forecasts appear at odds with this murky market outlook, and BP is expected to see earnings bounce 71% this year and 45% in 2016. But in my opinion, such a rebound is highly speculative as persistent OPEC pumping and sluggish global demand keeps the market in structural oversupply. And long-term growth could be undermined by aggressive asset sales and investment scalebacks.

Still, even if BP were to rise like a figurative ‘phoenix from the flames’ the company still deals on an ultra-expensive P/E rating of 19.1 times prospective earnings for this year — well outside the benchmark of 15 times or below which indicates attractive value — although this does drop to 13.7 times for 2016.

It is true that dividend yields for 2015 and 2016 make a mockery of the market average, with predicted payments of 38.7 US cents per share and 38.9 cents respectively creating a yield of 5.8% through to the close of next year. But with BP stepping up its efforts to conserve cash and the top line looking set to struggle, I believe that these generous forecasts could be downgraded.

ARM Holdings

Microchip builder ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) has long been favoured supplier for the world’s biggest tech manufacturers including Apple (NASDAQ: AAPL.US) and Samsung. But with smartphone and tablet PC sales in critical regions hitting saturation point, and consumers increasingly opting for cheaper devices — handsets which generate much less for ARM Holdings’ royalties pot — I reckon that stunning earnings expansion could be a thing of the past.

Despite slowing device demand, the number crunchers expect ARM Holdings to punch stratospheric earnings growth of 69% in 2015, and an additional 20% rise is predicted for 2016. But whether or not such projections are likely to be met, these numbers still leave the business dealing on elevated P/E ratios of 38.9 times and 32.9 times for this year and next year respectively.

Encouragingly, ARM Holdings has been using its robust cash pile to deliver huge dividend growth during the past few years, and a full-year payout of 7.02p per share last year is expected to leap to 8.6p in 2015 and 10.3p in 2016. Still, these prospective dividends still lag the market by some distance and offer up yields of just 0.7% and 0.9% for these years. I believe that the risks facing ARM Holdings far outweigh the potential rewards at the current time.

Weir Group

Like BP, I believe that pump manufacturer Weir Group (LSE: WEIR) should continue to suffer the effects of weak commodity prices as demand for its high-tech products drops off. The Glasgow firm saw pre-tax profit dip 2% in 2014, to £409m, and I expect this to worsen as the effect of lower demand for its high-tech products — not to mentioned increased pricing pressures — across its Minerals and Oil & Gas divisions ramp up a notch or several.

City brokers expect Weir to punch a third consecutive annual earnings dip in 2015, and a 21% decline is currently chalked in, leaving the firm changing hands on a P/E multiple of 16.7 times. Expectations of a 7% improvement next year pushes this reading to 15.8 times, though I believe this is still expensive given the uncertainties enveloping the raw materials sectors.

On top of this, Weir is also predicted to deliver dividends which lag the wider FTSE 100 this year and next. Sure, the business is expected to hike the payout from 44p per share in 2014 to 45.3p this year and 48.5p in 2016, but these figures create yields of just 2.5% and 2.6% respectively. Such numbers are far from embarrassing but I believe that better value and less risk can be found elsewhere.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and Weir. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.