Today I am looking at three embattled London stocks offering terrible bang for one’s buck.
Shares in Standard Chartered (LSE: STAN) received a fillip last week when rumours emerged that George Osborne was preparing to relax the banking levy, imposing the charge on UK assets alone. Such a move would obviously benefit emerging-market-geared StanChart, but with the institution facing continued upheaval in developing regions such as Korea and drastically downscaling across Asia, I believe the outlook at the bank remains gloomy at best.
At first glance Standard Chartered may not be considered a rip-off stock pick, however, with a P/E ratio of 12 times for this year — prompted by expectations of a further 5% earnings fall — falling comfortably below the benchmark of 15 times that indicates attractive value. But given the uphill task the bank faces to turn around its ailing fortunes, not to mention the uncertainty created by ongoing regulatory scrutiny, I believe a reading below the bargain benchmark of 10 times would be a fairer reflection of StanChart’s woes.
On top of this, I reckon that the bank is also an inferior pick to many of its industry rivals. Both Lloyds and Barclays are less risky propositions owing to their reinvigorated focus on the UK High Street, and which deal on lower earnings ratios of 10.4 times and 11.7 times respectively. And Santander’s multiple of 11.9 times is a far better deal in my opinion, particularly given the firm’s leading position in the growing markets of Latin America.
With oversupply washing across much of the mining sector, I believe that diversified digger Glencore (LSE: GLEN) is a poor choice for those seeking strong earnings growth. The business produces and markets a variety of base and precious metals, areas where excess supply looks set to remain rife, and boasts considerable exposure to the beleaguered energy markets through its coal and oil assets.
Given that weak commodity prices have caused earnings at Glencore to slide during the past three years, I believe that the City’s expectations of a 13% bounceback in 2015 are fanciful at best. And with the mining colossus changing hands on an elevated P/E rating of 19.5 times, I reckon that Glencore’s share price fails to adequately reflect the upheaval in its core markets. In my opinion the company should be dealing much closer to the marker of 10 times prospective earnings.
The Switzerland-based business illustrated the developing arms race in the natural resources space when it announced that “further production growth is expected from… recently commissioned projects, mainly in copper, zinc and nickel.” Like many of the world’s major producers, Glencore remains hell-bent on ramping up output despite the consequent impact market balances. And with global demand looking unlikely to hoover up this surplus material for many years to come, I believe that earnings at Glencore are likely to languish.
WM Morrison Supermarkets
I have long argued against the merits of investing in embattled grocery chain Morrisons (LSE: MRW) owing to the rising fragmentation of the British supermarket space. The Bradford firm is not alone in suffering from the rampant march of both budget and premium-ended outlets, but with its mid-tier competitors also pillaging its customer base I believe Morrisons is in severe peril of bottom-line woes for some time to come.
The business belatedly entered the lucrative online sphere early last year, but with competition rife across this sector I don’t believe Morrisons will find its salvation from internet custom. And worryingly the retailer’s brainstorming sessions are yet to throw up anything more than further rounds of margin-sapping discounting — the grocer slashed prices across a further 200 products just last week.
With sales steadily clattering lower, quite why the City expects Morrisons to record a 1% earnings uptick for the year ending January 2015 is beyond me, I’m afraid. And even if this proves correct, the retailer still changes hands on a P/E multiple of 15.8 times for this year, a high readout in my opinion considering Morrisons’ poor long-term profits outlook.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended shares in Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.