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Why J Sainsbury plc, Glencore PLC And Royal Bank of Scotland Group plc Are Ghastly Growth Selections

Today I am looking at three FTSE stalwarts with terrible growth prospects.

J Sainsbury

I have long argued that the increasing fragmentation of the grocery space leaves Sainsbury’s — along with mid-tier rivals Tesco and Morrisons — at risk of significant earnings weakness in the years ahead. These firms are becoming increasingly irrelevant as they service neither the modern, price-conscious shopper who loads up at Aldi or Lidl, or more discerning customer who buys their premium food items at Waitrose or Marks & Spencer.

Sainsbury’s continues to slash prices to attract shoppers back through its doors, and just last week extended its ‘Brand Match’ scheme to internet customers. But such initiatives still leave the London firm lagging behind its budget rivals in the price wars, and serve only instead to erode margins — a meagre 0.1% sales rise in the 12 weeks ending 16 August, according to Kantar Worldpanel, is hardly cause for celebration given that this marks the first positive reading for five months.

With massive competition in the online space hampering sales growth there, and Morrisons’ rumoured decision to hive off its M Local stores casting doubts on the potential of its convenience stores, it is hard to see where Sainsbury’s will generate growth from. Consequently the City expects the retailer to experience a 19% earnings slide in the 12 months to January 2016 alone, resulting in an unattractive P/E ratio of 11.9 times.

Glencore

Commodities colossus Glencore (LSE: GLEN) has bounced back strongly after the horrors of ‘Black Monday’ pushed the stock to fresh record lows, and the firm closed 4.6% higher in Tuesday business. Still, I believe the miner’s broad downtrend will return as more negative newsflow from China would appear to be on the cards — Glencore has seen its share price concede 60% during the past 12 months alone.

The diversified digger announced last week that earnings slipped 29% during January-June, to $4.6bn, a result that the business attributed to “a challenging backdrop for many of our commodities.” In a bid to strengthen the balance sheet Glencore announced it was slashing capex to $6bn in 2015 and to $5bn in 2016, while its ongoing divestment programme saw it hive off $290m worth of copper and nickel assets earlier in August.

While sensible to preserve capital strength, these measures are significantly hampering the firm’s long-term growth potential, naturally, while sliding commodity prices are hammering Glencore’s outlook in the near-term. As a result the company is anticipated to see earnings decline 23% earnings this year alone, creating a P/E multiple of 15.6 times — like Sainsbury’s I would consider a reading below the bargain watermark of 10 times to be a fairer reflection of Glencore’s high-risk status.

Royal Bank of Scotland

The result of massive restructuring at Royal Bank of Scotland (LSE: RBS) following the 2008/2009 financial crisis is expected to keep delivering smashing returns in the near term at least. Indeed, the business swung from a loss of 77.7p per share in 2013 to earnings of 0.8p last year, and the abacus bashers currently expect the Scottish firm to record further solid progress this year — earnings are predicted to jump to 28.4p. Such a projection creates a not-too-shoddy P/E multiple of 11.4 times.

But scratch a little harder and Royal Bank of Scotland’s breakneck momentum does not appear so robust. The company posted a £153m attributable loss during the first six months of 2015, swinging from a profit of £1.4bn a year earlier, a result that was driven again by the steady stream of misconduct charges — the firm shelled out a further £1.3bn during the period, driving it firmly into the red. And worryingly the bank advised that “judging the ultimate scale of conduct costs remains extremely challenging.”

On top of this, the cost of Royal Bank of Scotland’s huge transformation is also eating aggressively into the bottom line, while the bank’s huge divestment drive has also significantly dented the firm’s revenues outlook. The City currently expects the business to experience a 14% earnings slide in 2016, and I expect earnings to continue to keep on disappointing in the years ahead.

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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.