Today I am looking at the investment prospects of two London laggards.
Ring up a fortune
Shares in telecoms giant Vodafone (LSE: VOD) have endured a rocky period in the run-up to the festive period. Sure, the stock has enjoyed a hefty bump in recent days — Vodafone is up more than 2% in Wednesday trade alone — but the company continues to hover at levels not seen since last November.
However, I believe this weakness represents a terrific opportunity to get a slice of a great growth contender. Not only are sales in Europe rapidly improving, thanks in no small part to Vodafone’s massive investment in its data and voice capabilities, but the mobile operator is also enjoying surging uptake of its services across developing regions.
A combination of dragging European revenues earlier this year and colossal capital expenditure is expected to send earnings at Vodafone shuttling lower for the third successive time in fiscal 2016 — a 12% decline is pencilled in for the 12 months to March 2015. But improving market conditions are expected to send Vodafone’s bottom line 19% higher in 2017.
Sure, next year’s earnings projections still create a conventionally-high P/E rating of 38.7 times. But I feel that Vodafone’s tremendous growth opportunities fully merit such an elevated multiple, while investors’ wallets should also be soothed by jumbo dividends in the near-term and beyond.
For both 2016 and 2017 Vodafone is expected to shell out a full-year payment of 11.5p per share, up from 11.22p last year and yielding a gargantuan 5.3%. I reckon the London business is a top-quality stock worthy of a place in any stocks portfolio.
Bargain retailer getting battered
Budget retailer Bonmarche (LSE: BON) has not enjoyed as solid a performance as Vodafone in midweek trading, however. In fact the company’s share price was last seen tanking 28% following the release of disappointing trading numbers, sending the stock to record lows in the process.
Bonmarche announced that “trading conditions during December, particularly since ‘Black Friday’ on 27 November, have been very challenging.” The business had stressed the need for a return to more normal conditions in last month’s half-year results as critical to it meeting its full-year expectations.
But with market pressures persisting, the retailer now expects pre-tax profit to clock in at between £10.5m and £12m in the year to March 2015, down from £12.4m last year.
And Bonmarche provided a double-whammy to investors by announcing that chief executive Beth Borthwick, the architect of the retailer’s improvement after it exited administration, is set to depart the company in favour of fashion giant Karen Millen.
While Bonmarche’s multi-channel development and solid product investment could still provide rich rewards in the long term, I believe investors should perhaps sit on the sidelines for the moment as questions over the firm’s direction — not to mention the impact of worsening market conditions — could keep shares locked in freefall.
Royston Wild has no position in any shares mentioned. 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.