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Are J Sainsbury plc, Reckitt Benckiser Group Plc & Merlin Entertainments PLC Set To Soar?

Investors in Merlin Entertainments (LSE: MERL) are likely to be feeling relieved today after the company released a relatively positive trading update. Crucially, Merlin stated that it is on-track to meet its lowered expectations for the full year, although Alton Towers’ visitor numbers continue to be significantly weaker than last year’s comparable following the tragic rollercoaster accident earlier this year.

Despite this, Alton Towers has enjoyed a strong Halloween trading period, while Legoland continues to provide resilient growth. And, while Midway Attractions delivered weak performance, Merlin’s new attractions and accommodations are moving from strength to strength.

Looking ahead, Merlin is forecast to post a fall in earnings of 1% in the current year which, while disappointing, appears to be priced in to the company’s valuation. That’s because next year Merlin is expected to deliver a rise in net profit of 15% and, with its shares trading on a price to earnings growth (PEG) ratio of just 1.4, capital gains appear to be very much on the horizon.

Similarly, Sainsbury’s (LSE: SBRY) is in the midst of a very tough year, with the supermarket due to see its earnings decline by 16% in the current year. And, with a further decline of 2% pencilled in for next year, things are set to get worse before they get better for Sainsbury’s.

However, now could be a good time to buy a slice of the business since it has the potential to turn its fortunes around. For example, a new pricing strategy which focuses on value rather than price could resonate well with shoppers who are seeing their wages rise at a faster rate than inflation for the first time in a number of years and are therefore likely to become less price-conscious.

Moreover, with Sainsbury’s new pricing strategy likely to provide its own brands with rising margins, it could have a positive impact on the company’s bottom line, too. Sainsbury’s trades on a price to earnings (P/E) ratio of just 11.4 and, as a result, it appears to be a bargain buy at the present time.

Meanwhile, Reckitt Benckiser (LSE: RB) continues to offer a superb long term growth outlook, with the consumer goods company likely to benefit from rising demand from emerging markets in the long run. This is a key reason why its share price has soared by 20% since the turn of the year, since its near-term performance is somewhat disappointing.

For example, Reckitt Benckiser is expected to deliver earnings growth of just 3% this year and, while this is forecast to rise to 7% next year, it is still only in-line with the growth rate of the wider index. As such, Reckitt Benckiser’s P/E ratio of 26.1 appears to be somewhat excessive, while its yield of 1.9% provides further evidence of its bloated valuation. So, while Reckitt Benckiser is a high quality company with a very bright long term future, it may be prudent to wait for a keener share price before piling in.

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Peter Stephens owns shares of Sainsbury (J). 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.