MENU

Is The Party Over At SABMiller PLC, ARM Holdings Plc, Shire plc & Betfair Group Ltd?

SABMiller (LSE: SAB) shareholders are not having the best of times, but I keep faith in the brewer.

Elsewhere, a relatively high-beta stock such as ARM (LSE: ARM), has come under pressure in recent days — but at 1,128p a share, I would still retain exposure.

The same applies to Shire (LSE: SHP) — but will Betfair (LSE: BET) beat them all?  

Better Than Most 

Growth is a problem, but SAB isn’t any different from most of its rivals. It’s a difficult point in the business cycle for the beer industry: less effective price and volume policies jeopardise revenues, cash flows and earnings. SAB trades at 22x forward earnings, and at 14.5x based on its adjusted operating cash flow — it is slightly more expensive than AB Inbev, but commands a meaningful premium versus Heineken and Carlsberg. Based on fundamentals and other factors, the gap will likely widen over time, in my  view.

At £33 a share, it trades 12% below its 52-week high of 3,857p. At 2.1%, its forward dividend yield looks safe, but is lower than that of AB Inbev. Takeover talk surrounding Diageo rather than SAB are likely to favour the former over the very short term, but I wouldn’t trust the rumours, while I still prefer SAB’s prospects. 

Growth & Yield

At 1,127p, ARM trades in line with the average price target from brokers. According to consensus estimates from Thomson Reuters, if analysts in the bull camp are right, upside could be as much as 37%… but if they are wrong, downside could be as much as 38% from this level. I’ve been bullish on ARM for a long time, ever since it traded at around 850p a share, and although its forward trading multiples are demanding, I believe there’s still value in ARM, whose margins could grow at a faster rate in the next few years, rendering its stock less expensive over time. ARM reports reports its interim 2015 results on 22 July, and you’d do well to add the stock to your wish list right now if you haven’t done so already. 

Elsewhere, Shire is finding it more difficult to create value for shareholders at 5,380p share, yet there’s more than one reason why this remains a solid play against volatility. It’s one of the most efficient pharmaceuticals plays in the marketplace, and I support its capital allocation strategy. Speculation has it that Shire could target Swiss biotech company Actelion (which is up 9% on Monday on the back of takeover chatter), but I’d invest in Shire due to its appealing valuation and strong fundamentals, which make it for an ideal long-term value investment. 

Size Matters? 

If stocks in the FTSE 100 are not on your wish list, I suggest you look at Betfair, whose stock was down 5% on Friday, as some brokers have turned bearish on strategy. While it’s true that Betfair, which trades at 2,550p, is not exactly in bargain territory, weakness in its stock price is the inevitable price to pay for a rally that, as I expected, has determined a stellar performance in recent times — the shares are up 119% over the last 12 months. While you may be tempted to take some profit (Betfair trades well above the average price target from brokers), consider that consensus estimates have risen 66% to 21.4p over the last 12 months, and further upgrades should not be ruled out. Its 2015 full-year results are due on 17 June.

If you are convinced that Betfair is overpriced, while the other three stocks mentioned in this article offer little capital appreciation in months ahead, I suggest you embrace risk and go for an online fashion retailer, whose stock has risen 115% since its trough in mid-October and whose name have been included in a FREE report, which focuses on growth and potential yield candidates. 

Our report is FREE for a limited amount of time, so download it now and get to learn more about value and how to beat the market, regardless of broader macroeconomic conditions. 

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