Are Vodafone Group plc, Hargreaves Lansdown PLC & Fresnillo Plc Heading For Falls In 2016?

The FTSE 100 has had a weird year this year, with some constituents performing gyrations that are normally only seen on smaller cap indexes. Such volatility gives us some great opportunities, but it adds a lot more risk to the mix.

Take Vodafone (LSE: VOD), for example, whose shares are up 39% in three years, to 216p. That sounds good, but it hides a white-knuckle ride that’s had the price bouncing up and down between the 160p and 250p levels.

On forecasts for the year to March 2016, we’re looking at a P/E multiple of over 45, which is the kind of valuation usually only afforded to almost-guaranteed growth or to small blue-sky hopes. But Vodafone has seen earnings falling heavily for two years in a row, with a further 14% fall on the cards this year. There’s a modest 20% rise penciled in for 2017, but that would drop the P/E only as far as 38.

With no obvious joined-up strategy I can see, and ludicrous dividend yields of 5% on offer that aren’t even half covered by earnings, Vodafone’s fundamentals seen out of kilter to me. I could see a rationalization hurting the share price.

Soaring on sentiment

Hargreaves Lansdown (LSE: HL) has been performing very well in the past few years, as investor sentiment has been improving and its coffers have been swelling — at Q1 time this year, the firm reported £54.7bn in assets under administration, and an 11% rise in net revenue to £78.5m.

But at the same time, the share price has been soaring — over the past 12 months alone, it’s up 50% to 1,478p. And that’s put the shares on a forward P/E of 38. Although there’s an 18% rise in EPS forecast for the current year, it comes after a 4% drop in the year ended June 2015, and the dividend should only yield around 2.5% — and would be only barely covered.

Great company, but the share price is surely overheated.

Shiny stuff

Shares in silver miner Fresnillo (LSE: FRES) have had a torrid time, losing around 64% since late 2012, to 709p today — with the main culprit being the falling price of silver. But with the precious metal firming up a bit, Fresnillo’s shares have ticked up since the start of October.

The company does have a 158% rise in earnings per share forecast for this year, but that’s from a crunching low in 2014 and would still be quite some way behind its earlier glories. Still, there’s a further rise of more than 80% on the cards in 2016, so why do I feel uneasy about the shares?

It’s simply because they’re on a prospective P/E this year of 56, which only drops to 30 on 2016 expectations. To me, that seems to factor in at least a couple more years of decent earnings growth. And to be fair, it might well be there — but it hangs almost entirely on the fickle pricing of precious metals, and that’s too risky for me.

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