Why I Would Buy Vodafone Group plc And N Brown Group plc But Sell Ophir Energy Plc

Today I am looking the investment case for three of the FTSE’s big hitters.

Vodafone Group

I believe that Vodafone (LSE: VOD) (NASDAQ: VOD.US) is in great shape to enjoy resplendent revenues growth in the coming years. The company is witnessing rapidly improving conditions in its European heartland, and is also enjoying surging demand for its services in emerging regions. On top of this, the mobile operator also remains busy on the M&A scene, as well as chucking vast sums at organic investment, and has once again been linked with a takeover of Liberty Global this week.

And such measures are expected to start paying off big time after a bumpy few years. Indeed, the City is in broad agreement that Vodafone should recover from a colossal 63% earnings slide for the year concluding March 2015 with a much more modest 5% slip this year. And the bottom line is expected to improve still further in 2017 with a 20% jump.

On paper at least, projections for this year and next do not create standout value, with P/E multiples of 37.8 times and 32.9 times respectively sailing well above the watermark of 15 times which represents attractive value. But this is more than compensated for by Vodafone’s über-generous dividend policy — estimated payouts of 11.8p per share for 2016 and 11.9p for 2017 produce sizeable yields of 4.9% and 5%.

N Brown Group

Clothing giant N Brown (LSE: BWNG) has been one of the best performing stocks in midweek trade and was last dealing 4.2% higher on the day. The business has not enjoyed the best of times over the past year as the transformation process to internet retailing from mail order has proved a bit of a slog, but today’s bubbly full-year release suggests that the worst could finally be behind it.

The retailer advised that sales across its brands — N Brown counts Simply Be, JD Williams and Jacamo — flatlined in the 12 months to February 2015 at £818m, a result which drove pre-tax profit 21% lower to £76.3m. But the firm has seen online sales march higher in recent months as a result of the extensive work it has engaged in behind the scenes, a situation which leaves it in great shape for the future.

Indeed, the number crunchers expect earnings at N Brown to flip 21% higher in fiscal 2016, creating an attractive P/E multiple of just 12.8 times. And predictions of a further 10% bounce next year drive the ratio to just 11.8 times. On top of this, N Brown’s exceptional value is illustrated by PEG readouts of just 0.6 and 1.2 for 2016 and 2017 correspondingly — any figure around or below 1 is generally considered a steal.

Ophir Energy

Conversely, I believe that Ophir Energy (LSE: OPHR) could represent something of a bear trap for value-hungry investors. The shares were recently dealing 6.1% lower in Wednesday’s session, and with good reason in my opinion given that a sluggish global economy is failing to pick up the slack created by surging North American, Russian and OPEC output.

Bullish investors will make a case for the explorer’s bulky cash pile — this stood at $1.2bn as of the close of 2014 — a situation which has enabled Ophir Energy to keep on building its asset base while others have been scrambling to conserve cash. Indeed, the fossil fuel play followed up the huge takeover of Salamander Energy last year, and its highly-promising South-East Asian assets, with the acquisition of four deepwater production sharing contracts in Indonesia just this week.

But should black gold prices resume their downtrend, I reckon that investor appetite could sour quickly should the economic viability of Ophir Energy’s projects come under the microscope and the balance sheet begin to weaken, a very real scenario in my opinion.

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Royston Wild has no position in any 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.