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Why I Would Steer Well Clear of Tesco PLC, Tullow Oil PLC And Royal Bank Of Scotland Group plc

Today I am analysing three FTSE stocks with poor growth pictures.

Tesco

Troubled supermarket Tesco (LSE: TSCO) has been carried higher in recent weeks as cross-market buying appetite has taken off. I for one would resist piling into the firm just yet, however, as the growth picture remains as murky as ever and brokers are breaking out their red pens once again.

The worrying state of Tesco’s core operations was underlined this week with news that 14 development sites across London, the South East and Bath — land previously earmarked for new ‘megastores’ — will be sold off for £250m. Although a welcome boost for the battered balance sheet, not to mention a promising sign that Tesco is getting to grips with changing consumer habits, the company remains unhealthily reliant upon the fortunes of its existing fleet of large stores to generate sales.

These outlets are becoming more and more unpopular as shoppers buy less and more often, playing into the hands of convenience stores and the smaller discounters like Aldi and Lidl. As Tesco’s sales continue to slow, the City continues to downgrade its forecasts and a 21% earnings slide is now expected, resulting in a huge P/E ratio of 27.9 times. I consider this P/E reading to be unfathomably high given the huge obstacles Tesco still has to overcome.

Tullow Oil

I am also far from convinced by the revenues outlook over at Tullow Oil (LSE: TLW) thanks to the state of the oil market. The Brent benchmark is still failing to break back above the $50 per barrel marker as traders remain uncertain over the state of the fossil fuel imbalance.

And with good reason: sure, the number of US shale rigs in operation has begun trending lower again in tandem with the oil price. But overall North American supply remains abundant, and as seen previously the number of operating pumps is likely to climb again should the black gold value tick higher. With other major producing nations still hiking their own output, and Chinese imports continuing to struggle, I believe earnings at Tullow Oil remain in severe peril.

Like Tesco, Tullow Oil has enjoyed a solid spurt higher in recent weeks, thanks in no small part to positive news concerning its licences in Gabon. But with oil prices looking likely to lag and the business carrying a colossal debt pile — net debt rose almost a third during January-June, to $3.6bn — I fully expect the firm to extend last year’s losses.

Royal Bank Of Scotland Group

Banking giant Royal Bank Of Scotland (LSE: RBS) may not be facing the chronic top-line pressures of Tesco or Tullow Oil, but I still believe the business still lacks a compelling investment case, particularly when tallied up against its rivals.

The bank is an almost unrecognisable beast from the sprawling, high-risk entity created under the stewardship of Fred Goodwin. But many, myself included, fear that the scale of asset shedding more recently has significantly undermined the company’s earnings outlook — indeed, Royal Bank of Scotland saw revenues rattle 11% lower during January-June thanks to the gutting of its Corporate & Institutional Banking division.

While the bank’s essential restructuring programme has worked wonders for reducing the cost base, I am not convinced that the measures have helped Royal Bank of Scotland’s long-term sales picture, particularly when considering Barclays, Santander and HSBC’s superior position in developed regions and rising success in emerging markets. The firm is by no means a ‘bad stock’, but I feel much more lucrative returns can be found elsewhere.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.