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Growth Is Set To Drag At BHP Billiton plc, Admiral Group plc And Home Retail Group Plc. But Are They Still A ‘Buy’?

Today I am discussing whether investors should park their cash in three London-listed sluggers.

BHP Billiton

With the mining sector facing revenues pressures from all quarters, I believe that not even diversified diggers like BHP Billiton (LSE: BLT) can avoid the crushing impact of worsening supply balances. While it is true that the London firm faces the prospect of falling commodity prices across all of its major markets, it is the firm’s huge exposure to the iron ore market which is of most concern.

Indeed, Citigroup slashed its forecasts again this week as supplies rise and steel production dips, the broker predicting a fall back below $50 per tonne once again to as low as $38 during the fourth quarter. Accordingly the City expects BHP Billiton to suffer jaw-dropping earnings dips of 43% and 27% in the years concluding June 2015 and 2016 respectively, leaving the business dealing on P/E multiples of 14.7 times and 20.4 times. Given the lack of clear growth drivers it is hard to justify these figures.

Still, some would argue that the mining play’s giant yields for this period makes the business an attractive buy — predicted dividends of 122 US cents per share for 2015 and 126 cents for 2016 create huge yields of 5.9% and 6.1% respectively. But plummeting earnings leave meagre dividend coverage of 1.2 times for this year, well below the safety standard of 2 times, while 2016’s predicted payment actually exceeds earnings. And with BHP Billiton having to nurse a colossal $24.9bn net debt pile I believe these forecasts are hard to believe.

Admiral Group

In my opinion car insurance specialists Admiral Group (LSE: ADM) are a hot pick despite the prospect of near-term earnings troubles. It is true that the Welsh business is set to clock another annual loss on the back of previously-falling premiums — a 10% drop slated for 2015 follows last year’s 2% dip — but I reckon an environment of improving prices should drive earnings thereafter.

Latest Consumer Intelligence data this week gave further credence to this theory, revealing that the cheapest driver premiums edged 0.3% higher on an annualised basis during May, to £677. This marks a huge swing from the 1.1% drop posted between December 2014 and last month. Against this backdrop Admiral is expected to see earnings prick 6% higher during 2016, pushing this year’s P/E multiple of 15.2 times to just 14.6 times.

Any reading around or below 15 times is widely considered terrific value. And when you throw in dividend forecasts for this period Admiral becomes an ultra-attractive stock selection, in my opinion. The insurer is anticipated to fork out an 89.9p-per-share reward in 2015, yielding a stonking 6.3%. And this rises to 6.6% for next year amid predictions of a 94.6p payment.

Home Retail Group

It could be argued that growth at Home Retail Group (LSE: HOME) remains in peril as its turnaround plan still has a long, long way to go. The company’s Argos outlets saw like-for-like sales slip 3.6% during March-May thanks in no small part to declining electrical sales, a worrying sign given that rivals such as Dixons Carphone and AO World continue to report solid revenues growth.

On a brighter note, however, underlying sales at Homebase ticked 5.4% higher during the period, although many sceptics will point to massive discounting as the driving factor behind this resurgence. But with Home Retail Group taking the hatchet to its underperforming stores — the firm closed 17 Homebase sites during the quarter — and ramping up Argos’ footprint in the digital shopping sphere, I believe the Milton Keynes business could emerge as a lucrative turnaround play.

The retailer is expected to see earnings decline 5% in the 12 months concluding February 2016, although an 8% rebound is expected in fiscal 2017. These numbers leave Home Retail Group dealing on reasonable P/E ratios of 12.7 times for this year and 11.9 times for 2017, while predicted dividends of 4p and 4.5p per share for these years create handy-if-unspectacular yields of 2.4% and 2.7% correspondingly.

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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.