Can Reckitt Benckiser Group Plc, Ashtead Group PLC, HSBC Holdings plc And Smith & Nephew plc Continue Their Charge Higher?

Royston Wild discusses whether Reckitt Benckiser Group Plc (LON: RB), Ashtead Group PLC (LON: AHT), HSBC Holdings plc (LON: HSBA) and Smith & Nephew plc (LON: SN) can continue their recent ascent.

| 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 share price prospects of four recent big-cap blasters.

Reckitt Benckiser Group

Household goods giant Reckitt Benckiser (LSE: RB) has staged an impressive recovery after emerging market concerns forced a washout during much of August. Shares have advanced 1% in the past seven days despite strong risk-aversion in start-of-week business, and I believe the firm should maintain its broad multi-year uptrend as consumer spending power pushes higher across the globe.

Helped by the formidable pricing power of labels from Durex condoms and Finish dishwasher tablets through to Nurofen pain relievers, Reckitt Benckiser’s market-leading products provide brilliant earnings visibility even in times of wider macroeconomic troubles.

Consequently the business is expected to record growth of 3% in 2015 and 2016, producing elevated P/E ratios of 24.2 times and 22.6 times respectively. But I believe the firm’s exceptional long-term growth prospects — boosted by the likelihood of further M&A activity, particularly in the lucrative ‘consumer healthcare’ segment — fully merits this premium.

Ashtead Group

After a spritely recovery from August’s troughs, souring investor appetite has pushed shares in power generator provider Ashtead (LSE: AHT) south again and the shares are 5% lower than levels a week ago. However, I believe this represents a fresh buying opportunity and fully expect shares to chug higher again, underpinned by the strong momentum of the US and British construction sectors.

Although problems in the oil and gas sector remain a worry, market share grabs by its A-Plant and Sunbelt brands are helping to cushion pressures on the top line — indeed, rental revenues leapt 20% during May-July, driving pre-tax profit 23% higher to £160.7m.

Thanks to its leading proposition across a multitude of markets, the City expects Ashtead to keep earnings growing with advances of 24% and 16% pencilled in for the years ending April 2016 and 2017 respectively. Such figures suggest the firm remains undervalued, producing ultra-low P/E ratios of 12.6 times for this year and 11 times for 2017.

HSBC Holdings

Banking goliath HSBC’s (LSE: HSBA) recovery during the past few weeks has been far more modest, and consequently insipid investor appetite in the week to date has erased gains of the previous seven days — the bank was recently 4% lower from last Tuesday’s close.

And there is still plenty of uncertainty swirling around the bank to suggest that further volatility could be in the offing. From renewed fears of economic slowdown in its critical Chinese marketplace, through to rising financial penalties owing to previous regulatory misdeeds, there is no guarantee that ‘The World’s Local Bank’ will pull clear in the near future.

But over the long-term I believe HSBC remains a terrific long-term banking bet. The company’s premier position in the growth hotbeds of Asia — not to mention hefty presence in North America and the UK — should keep revenues pounding higher, while extensive cost-cutting is also creating a more efficient, earnings-generating machine for the years ahead. With the firm expected to see bottom line growth of 18% in 2015 and 2% in 2016, HSBC sports ridiculously-low P/E ratios of 9.6 times and 9.2 times for these years, providing plenty of reason for investors to pile in.

Smith & Nephew

By comparison, shares in artificial limb and joint builder Smith & Nephew (LSE: SN) have remained far more resilient and are actually fractionally higher from the same period last week. And with good reason — rising healthcare investment the world over promises to keep revenues heading northwards for the foreseeable future, a trend Smith & Nephew is latching onto by selective purchases in both established and developing regions.

Indeed, sales in emerging markets continue to advance at a double-digit rate, Smith & Nephew advised in July, territories in which the firm is aggressively building its presence. Meanwhile, effective turnaround measures at the company’s Advanced Wound Care is helping to power sales higher, while its Reconstruction business recorded  its best performance for three years during January-June thanks to new product roll-outs.

Smith & Nephew is clearly a business ‘on the up’, and the number crunchers expect the business to hurdle a rare 2% bottom-line decline in 2015 and punch a stonking 13% improvement in the following year. While the business carries high P/E ratios of 21 times for this year, this falls to a far-more palatable 18.7 times for 2016. I believe the health specialists are brilliant value at these prices.

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 has no position in any shares mentioned. The Motley Fool UK has recommended HSBC 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.

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 »