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Why I Would Buy Vodafone Group plc And Bovis Homes Group plc But Sell Vedanta Resources PLC

Today I am looking at the prospects of three FTSE heavyweights.

Vodafone Group

I am convinced that telecoms play Vodafone (LSE: VOD) (NASDAQ: VOD.US) is a great pick for those seeking terrific shareholder returns. After years of heavy weather in Europe, caused by a combination of pressured consumer spending power and regulatory hurdles, trading conditions in the firm’s most important market have shown solid signs of improvement in recent months.

The business is yet to return to revenues growth in these regions, however, but Vodafone’s $19bn organic investment scheme — allied with shrewd acquisitions like that of multi-services specialist Kabel Deutschland — promises to push European sales back into the black. On top of this, Vodafone is also witnessing surging product demand in developing regions, and organic service revenues from the Africa, Middle East and Asia Pacific territory leapt 5.9% in October-December.

These factors are expected to underpin a consistent improvement in Vodafone’s bottom line performance, and a 63% earnings dip predicted for the year concluding March 2015 is expected to lessen to 6% in the following year. And the London business is finally expected to flip back into the black with a 19% upward stomp in 2017.

Such figures do not make Vodafone a particularly attractive value pick on a pure earnings basis, however, with P/E ratios of 39.5 times and 33.4 times for 2016 and 2017 correspondingly sailing outside the touchstone of 15 times which represents decent value. Still, I believe that the mobile operator’s generous dividend policy — payouts of 11.8p per share for this year and 11.9p for 2017 create vast yields of 5% and 5.1% — help to mitigate these heady readings.

Bovis Homes Group

FTSE 250 stock Bovis Homes (LSE: BVS) extended the bubbly run of positive releases from Britain’s housebuilders on Friday, advising that “the UK economy remains positive with good quality home buyers able to access cost effective mortgage finance.” The Kent firm noted that total forward sales have risen 8% in the year to date, while housing production is up 9% from the corresponding 2014 period.

A combination of supportive lending conditions and a lack of housing supply looks set to keep driving homes prices solidly higher, and Bovis added that the average private house price so far in 2015 is around 2% ahead of expectations. Against this backcloth the City expects the construction play to enjoy earnings growth of 28% in 2015 and 20% in 2016, numbers which generate irresistible P/E multiples of 9.9 times and 8.3 times correspondingly.

And Bovis is also likely to remain a lucrative income pick during this period. Alongside results, the company announced its intention to shell out a forecast-beating 40p per share dividend this year, in turn generating a bubbly 4.1% yield. And should the homebuilder meet next year’s City projection of 44.9p, a chunky 4.5% yield is on offer.

Vedanta Resources

Unlike the two stocks I have mentioned above, I am not so giddy over the investment prospects of natural resources giant Vedanta Resources (LSE: VED). The business was forced to swallow a $4.5bn writedown of its oil and gas assets in India for the year concluding March 2015 as a result of tanking crude prices, a result that contributed to a colossal pre-tax loss of $5.64bn versus 2014’s profit of $1.12bn.

Even though a backdrop of weak commodity prices looks set to persist, Vedanta remains committed to ramping up its output during the next couple of years, particularly across the already-swamped copper, aluminium and iron ore markets. Consequently the business is expected to see losses per share extend this year, to 35.2 US cents per share from 14.2 cents in 2015. The City expects Vedanta to gallop back into the black in 2017 with earnings of 71.5 cents per share, but I believe such forecasts are fanciful at best given the worsening oversupply across the company’s core markets.

On top of this, I reckon Vedanta is a perilous selection for income hunters. The business hiked the dividend to 63 cents per share last year from 61 cents in 2014 despite its poor bottom line performance, and analysts expect further growth in 2016 and 2017 — payments of 66 cents and 70 cents are currently anticipated for these years, creating monster yields of 6.4% and 6.7%. But with Vedanta’s net debt pile growing to $8.5bn last year, and earnings weakness on course to persist, I reckon investors should take these figures with a pinch of salt.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the 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.