Can Last Week’s Losers Unilever plc, Whitbread plc, Sports Direct International PLC & Shire PLC Bite Back?

Royston Wild runs the rule over recent casualties Unilever plc (LON: ULVR), Whitbread plc (LON: WTB), Sports Direct International PLC (LON: SPD) and Shire PLC (LON: SHP).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at the investment prospects of four recent stock-market laggards.

Unilever

Household goods giant Unilever (LSE: ULVR) saw share prices fall off a cliff in August thanks to waning confidence in emerging market growth. Stocks have recovered some ground since, but last week’s 1% dip suggests that investors remain nervy over the firm’s growth prospects. I am not one to share those concerns, however, as spending in these regions continues to improve and the stellar brand power of labels from Dove soap to Walls ice cream keeps revenues chugging higher.

Unilever’s latest results showed underlying sales in developing nations surge 6% during April-June, speeding up from 5.4% in the prior three-month period. These factors are expected to deliver earnings growth of 9% and 6% in 2015 and 2016 correspondingly, leaving the business dealing on P/E ratios of 19.5 times and 18.3 times for these years. I consider these values to be good value given the quality of the stock and Unilever’s exceptional growth potential.

Whitbread

Investor appetite for hotel and cafe operator Whitbread (LSE: WTB) took a hit last week after the firm warned of the impact of next April’s ‘living wage’ on profits. The business lost 1% during the past seven days after advising that it would be forced to implement various measures, including “some selective price increases” in order to offset the effect of rising staff costs.

 Although this is quite rightly a valid concern for Whitbread’s bottom line, I believe the growing popularity of its Premier Inn budget hotels and Costa Coffee cafe chains still makes it a compelling stock pick — the business saw underlying sales in these outlets rise 5.3% and 4.6% respectively during February-July. Consequently the number crunchers expect Whitbread to enjoy earnings growth of 13% in both fiscal 2016 and 2017, driving a P/E multiple of 19.3 times for this year to just 16.9 times for 2017.

Sports Direct International

Sports pumps and tracksuit play Sports Direct (LSE: SPD) has seen its spectacular share ascent grind to an abrupt halt more recently, and the business shed 4% of its value during Monday-Friday. However, I reckon this provides a little more reason to opportunistic investors to plough in as a combination of store expansion in the UK and abroad, not to mention the enduring popularity of labels like Lonsdale and Karrimor, keep the tills ringing.

Of course Sports Direct faces the same pressure regarding staff costs as Whitbread. But I believe that improving conditions in the UK High Street should keep the bottom line streaking steadily higher. This view is shared by the City, and growth of 12% for fiscal 2016 and 14% for 2017 is currently anticipated. The retailer’s P/E ratio subsequently falls from 17.5 times for the current period to a very-attractive 15.3 times for 2017.

Shire

Medicines play Shire (LSE: SHP) saw spritely market sentiment dribble away during the course of last week, and the business saw its value fall 1% as a result. The business was left disappointed last month after its $30bn takeover attempt for fellow biotech play Baxalta was rebuffed, but rumours are currently circulating that the British company will return with an improved proposal imminently.

Shire estimates that any tie-up between the two entities would result in $20bn worth of product sales by 2020. But even without any accord I believe Shire’s terrific pipeline, supported by rising healthcare demand across the globe, should provide exceptional long-term earnings expansion. And so do the City’s boffins — Shire is expected to bounce from a predicted 33% slide this year to punch a 16% advance in 2016. These figures drive a P/E ratio of 19.7 times for 2015 to a far-improved 17.2 times for next year.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild owns shares of Unilever. The Motley Fool UK owns and has recommended Unilever. The Motley Fool UK has recommended Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »