Shares in building supplies specialist SIG (LSE: SHI) have fallen by over 2% today even though the company announced a higher pretax profit for the first half of the year. In fact, SIG delivered a significant rise in profitability versus the first half of 2014, with it increasing to over £26m from less than £12m a year earlier. Part of the reason for such a large jump was lower exceptional costs than in the comparable period, although SIG’s cost cutting initiatives are having considerable success, with £7m in cost savings being achieved in the first half of the year.
However, investors seem to have been spooked by the challenges faced by SIG in Europe, with weak demand, margin pressures and a depreciating Euro all contributing to a tough outlook for the company. Despite this, SIG is forecast to post a rise in earnings for the full year of 10%, followed by a further increase of 19% next year. Such strong performance should help to improve investor sentiment and, with SIG trading on a price to earnings growth (PEG) ratio of just 0.7, it offers a relatively wide margin of safety in case its outlook deteriorates.
Of course, SIG has already risen by 98% in the last five years and, as a result, many investors may be questioning whether it is too late to buy a slice of the business. After all, it could be argued, no stock goes up in perpetuity. However, with the outlook for mainland Europe in the long run being more positive now than for some time, owing to the potential for a Greek debt deal as well as the expected impact of quantitative easing on consumer demand, the region may (currency headwinds aside) surprise on the upside and, as a consequence, SIG remains a stock worth buying at the present time.
Meanwhile, it could also be argued that it is too late to buy the likes of National Grid (LSE: NG) and Amur Minerals (LSE: AMUR). In the case of the former, the outlook for the global economy has improved in recent years and, because of that, defensive stocks may not enjoy such strong investor sentiment as they have done previously. Furthermore, with interest rates set to rise, demand for National Grid’s yield could wane and cause its share price performance to disappoint.
However, National Grid is likely to continue to perform well in future, since interest rates are unlikely to move higher at a rapid rate. As a result, its 5.2% yield should keep demand for its shares healthy, while the economy is unlikely to experience a prolonged period without any problems. As such, defensives may become en vogue a lot sooner than the market currently believes.
Similarly, Amur Minerals may have posted a rise in its share price of 86% in the last six months and acquired the mining rights at the highly appealing Kun-Manie prospect in Russia, but there is still significant long term potential for investors to benefit. Certainly, in the short run the project’s financing is likely to dominate news flow and the logistical challenges of the prospect could cause sentiment in the stock to change. However, it remains a very lucrative asset which, in the long run, could achieve stunning levels of profitability. Therefore, it does not appear to be too late to buy a slice of Amur Minerals, although further volatility is likely to lie ahead.
