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3 Shares On My Watchlist Should The Market Meltdown: Rolls-Royce Holding plc, Aviva plc & GlaxoSmithKline plc

After two days of uncertainty, the market breathed a nervous sigh of relief on Wednesday, this despite Greece being the first developed country to actually default on its debt. Even now, there is speculation aplenty as to whether the politicians can actually agree a workable solution to this debacle, which keeps both the lenders and the Greek People happy.

As we all should know by now, the market hates uncertainty, and I suspect that there will be plenty more volatility to come over the coming days, weeks and possibly months as we watch this crisis play out.

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Whichever way the people decide to go, should they still go to the polls this Sunday, there will be plenty of pain in the years ahead.

As an investor, whilst mindful of the human cost that this crisis brings, it is my job to look for opportunities that this crisis presents to me. With that in mind, let me share three companies currently in my sights:

Rolls Royce Holdings…

Readers here may be a little surprised to see a company that has issued a string of profit warnings since October last year, but I do tend to get a little interested when blue-chip organisations like Rolls Royce (LSE: RR) — or more to the point, their share price — crash by nearly 50% over the last 18 months.

That said, as I have stated before, the share price can continue to sink as the market wakes up to the fact that it could be some time before the business starts to fire on all cylinders again – if at all. Add a little uncertainty about Europe and the possible ramifications on the global economy, and you can see why I might want a higher margin of safety than I may normally ask.

With the shares trading at just over 14 times forward earnings and yielding under 3%, I’m happy to sit a wait a while longer.

But let’s be clear here – this is a company with an order book in excess of £70 billion, so it’s not really struggling for work. To my mind, it just needs to do that work more efficiently. The new man at the top is Warren East, formerly the CEO of ARM Holdings, and one of the executives that placed the company firmly on the map. This could be the man to turn the company’s fortunes around… should the market panic over Greece a little more, I may well get the entry point that I want to open a long-term position.

Aviva…

Some might argue that Aviva (LSE: AV) has been trying to turn around since 2012 when then-CEO Andrew Moss was forced out following the much publicised ‘shareholder spring’ attacked his pay packet – hardly surprising, as the share price was over 50% less than when he had taken charge, five years prior.

This led to the company embarking on a restructuring plan, including job cuts, selling off non-core operations and expanding into new growth markets, such as Asia.

This has continued under the new CEO, Mark Wilson, who — as the new broom — made the decision to cut the dividend and helped steer the company to better-than-expected profits in the year ending 2013.

The company has also now completed on the deal which has bought Friends Life Group into the fold. The deal boosts its customers by almost 50% and trims over £200 million of annual costs.

Additionally, the group raised its final dividend by 30% — rises like this give me confidence that the group is turning itself around. Whilst the CEO admits that there is still work to be done, the shares are starting to look very interesting, trading at around 10 times forward earnings and yielding nearly 5%.

GlaxoSmithKline…

GlaxoSmithKline (LSE: GSK) is currently in the process of working through the Novartis deal that it announced last year.

Mr Market is currently a little uncertain regarding the strategic review coupled with the fact that the dividend is being held at 80p per share over the next three years. Additionally, the proposed return to shareholders of £4 billion of proceeds from the Novartis transaction was reduced to £1 billion: this will be paid in the fourth quarter along with the final dividend. Whilst this creates more breathing room for the company, the market was disappointed by the news.

At current prices, investors know that they have a rather safe 6%+ yield for the next three years.

That’s not a bad return whilst we wait for the strategic review to work through the company. Whilst some might argue that the lack of growth makes Glaxo unattractive, I believe that dividend growth could well resume in 2017: should the company’s strategy play out as expected, it should be in a stronger financial position, allowing it to resume growing the dividend.

Going forward, the company intends to target emerging markets for much of the company’s growth, with an increased focus on vaccines and consumer healthcare. Helpfully, the vaccines business grew sales by 10% and revenue is forecast to grow at a CAGR (compound annual growth rate) of mid-to-high single digits out to 2020. This is an area the firm has invested in increased manufacturing capacity in anticipation of strong demand for its products.

The Price Is Right?

As you can see from the three-month chart below, all three shares have underperformed the FTSE 100. Should this continue with the market in panic over the possibility of a ‘Grexit’, patient long-term investors may well be able to bag themselves a bargain!

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and 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.

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