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BAE Systems plc, Weir Group PLC & National Grid plc Have All Fallen ~10%… Is It Time To Bulk Up?

Today I am looking at three beaten-down stocks that could well be attracting the glances of bargain hunters.

BAE Systems

Weapons builder BAE Systems (LSE: BA) has endured a torrid time during the past four weeks and has seen shares slide 9% during the period. In my opinion, this provides a prime buying opportunity as the defence industry is in ruder health than it has been since the 2008/2009 financial crisis rocked government budgets — order books across the industry are back on the mend, and BAE Systems announced in mid-May that it is “making good progress” so far in 2015.

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And with good reason: the company’s cutting-edge technology has made it a favourite with Western governments for many years, and the firm’s hardware is attracting increasing attention from tasty emerging regions. Accordingly the City expects BAE Systems to bounce back from 2014’s 10% earnings slip with advances of 3% and 7% in 2015 and 2016 correspondingly, projections that create very decent P/E multiples of 12 times and 11.3 times.

With the defence sector finally looking up, I believe investors can also be confident of flowing dividend growth in the coming years. Indeed, BAE Systems is anticipated to raise last year’s payment of 20.5p per share to 20.8p this year, and again to 21.6p in 2016. Consequently the arms builder carries juicy yields of 4.4% and 4.5% for this year and next.

Weir Group

Like BAE Systems, specialised pump builder Weir (LSE: WEIR) has seen its share price dip markedly since mid-May, the stock having conceded some 9.5%. But unlike its FTSE peer, I believe that investors should steer clear of the Scottish business as continued weakness in the mining and oil sectors threatens to keep revenues under pressure.

Indeed, Weir announced during the period that order intake at its Oil & Gas division tanked 34% during the first five months of 2015. With pressured commodity prices likely to restrain capex across the resources sectors, the number crunchers expect Weir to suffer a colossal 31% earnings dip this year, leaving Weir dealing on a P/E multiple of 18.4 times — I would consider a reading closer to the bargain barometer of 10 times to be a fairer reflection of the risks facing the business.

Despite these problems, the engineer is predicted to keep its progressive dividend programme rolling, and a payout of 45.3p per share is currently slated for 2015, up from 44p last year. But given that Weir’s net debt continues to edge higher — this came in at a huge £861m as of the close of 2014 — I believe that even an underwhelming yield of 2.7% could be deemed optimistic.

National Grid

I am far more bullish on the investment prospects of network operator National Grid (LSE: NG), however, with the company’s vertically-integrated model providing terrific earnings visibility. Still, the market has failed to share my enthusiasm in recent weeks, and the stock was recently dealing 7.9% lower from levels punched during the middle of May.

Investors failed to get excited about National Grid’s results for the year concluding March 2015, which showed RIIO cost-cutting initiatives help push operating profit at the firm 5% higher to £3.9bn. With the business also embarking on a huge asset building and improvement scheme in both the UK and US, City analysts expect the bottom line to remain resilient — earnings growth of 1% and 2% are chalked in for 2016 and 2017 respectively, leaving the power play dealing on decent P/E ratios of 14.7 times and 14.3 times.

And National Grid’s strong cash flows are expected to keep dividends charging higher, too. Last year’s 42.87p-per-share reward is expected to rise to 44.1p in the current period, yielding an impressive 5.1%. And this moves to 5.3% amid expectations of a 45.2p payout.

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

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