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Why I Would Buy GlaxoSmithKline plc And Royal Mail PLC But Sell James Fisher & Sons plc

Today I am running the rule over three of the FTSE’s largest-listed stocks.

GlaxoSmithKline

I believe that pills play GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is a terrific selection for those seeking a top-notch turnaround stock. After suffering three years of earnings declines due to crippling patent losses, the company’s attempts to supercharge its product pipeline are clearly paying off handsomely — indeed, GlaxoSmithKline announced this week that it has developed a shingles vaccine which boasts an astonishing 97% success rate in adults.

The result of massive organic investment, ongoing acquisition activity and synergies with industry peers are not expected to herald an immediate turnaround, however. But an expected 5% bottom-line decline this year is expected to be followed with a much-awaited bounceback in 2016, to the tune of 3%. And I expect GlaxoSmithKline’s terrific R&D department to deliver the next generation of significant, long-term revenues drivers, helped by surging healthcare spend in emerging regions.

The pharma giant currently changes hands on P/E multiples of 17.1 times and 16.3 times prospective earnings for 2015 and 2016 respectively, just above the benchmark of 15 times which signals attractive value. But I believe the huge potential of GlaxoSmithKline’s operations warrant this slight premium, while expected dividends around 80.9p per share through to the close of next year produce a market-smashing yield of 5.3%.

Royal Mail

Parcel and letters mover Royal Mail (LSE: RMG) has been one of the larger movers in Thursday business and was recently dealing 5% higher on the day. And I can understand this bullish investor sentiment as the courier looks set to enjoy the fruits of surging packages demand at home and in Europe in the coming years on the back of galloping online shopping activity.

With Royal Mail also rolling out improvements to its operations — such as improving its service at weekends — and embarking on a massive restructuring programme, I believe that earnings are on course to surge looking ahead. The City expects the firm to record a 13% earnings dip in the year concluding March 2016 as heavy investment weighs, but a 13% rebound is predicted for the following 12 months. These forecasts push the P/E multiple from 17.6 times for this year to just 14.5 times for 2017.

As well, Royal Mail’s generous dividend policy is also expected to keep on delivering the goods, with analysts pencilling in payments of 20.9p and 21.3p per share for 2016 and 2017 correspondingly. These forecasts create delicious yields of 4.7% and 4.8%.

James Fisher & Sons

Undoubtedly the high-quality, diversified operations of James Fisher & Sons (LSE: FSJ) sets it apart from many of the engineering plays listed on the London Stock Exchange. But with today’s trading update underlining the chronic weakness across its critical Offshore Oil segment — an issue which has driven shares in the firm 10.6% lower today — I believe the business is a risk too far at the current time.

James Fisher reported that “the current round of restructuring in the oil industry has slowed customer decision making and contract awards generally.” With fossil fuel explorers and producers of all shapes and sizes all slashing capital expenditure, as the oil sector’s worsening imbalance threatens to drive crude prices through the floor again, I believe that demand for the business’ services could continue to disappoint..

Consequently I reckon City expectations of earnings rises to the tune of 8% in 2015 and 7% for 2016 could come under pressure. And with James Fisher dealing on P/E multiples of 16.9 times and 16 times for these years I believe the share price still fails to adequately reflect the chronic risks facing the company.

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