Those who sold in May, as the old saying urges, will have missed a few impressive share price rises. Although the FTSE 100 itself was pretty flat during the month, some of its constituents did well — and could have the potential to keep on going.
Housing still on the up
Share prices in the housebuilding business had been falling back since last summer as fears of a cooling in the market were having their effect, but since a recent low in mid-April we’ve seen a return to an upward trend. Shares in Barratt Developments (LSE: BDEV), in fact, gained 11% during May, to end the month on 592p — in the first few days of June we’ve seen a slight drop back from that, to 568p, but we’re still looking at a 13% uptick since that April dip.
Will Barratt Developments shares keep on climbing? Over the long term, yes, I think so. Earnings growth is set to slow and can’t possibly keep up with the immediate post-crash surge, but forecasts still suggest EPS rises of 19% for the year to 30 June, followed by a further 10% over the next 12 months. That puts the shares on forward P/E multiples of only 10.5 and 9.5 respectively, much lower that the long-term FTSE average of around 14 — and that’s with Barratt’s mooted dividend yields of 5% this year and 6% next wiping the floor with the FTSE’s average of around 3%.
Even after a five-year period that has seen Barratt shares more then five-bagging, they still look cheap to me.
My second favourite bank, Barclays (LSE: BARC), saw a 6% share price rise during May to 182p, which is more modest, though it does hide a 15% rise since the shares’ low point on 9 May. As I write, the price stands at 180p, so it’s holding up.
The thing is, over the past 12 months, Barclays shares have fallen by 32%, and I think that’s given us the best buying opportunity for some time. New boss Jes Staley made some tough decisions, like slashing the dividend this year, and that’s brought some short-term pain in the form of that share price fall. But his steps look to be the right ones, and likely to set Barclays up to out-perform in the longer term.
Though the expected dividend yield stands at a lowly 1.7% and EPS is predicted to fall 18% this year, a return to 57% earnings growth forecast for next year would drop the P/E as low as 8.4 — and just think of the effective future yields you could get from that when Barclays gets back to its planned progressive dividend policy!
The online takeaway company Just Eat (LSE: JE) has been a bit of a growth star since its flotation in April 2014, with the shares already having put on 55% to reach 436p — and that includes a 19% rise in May.
The reason for Just Eat’s success so far is easy to understand — acting as an intermediary and providing a delivery service for a multitude of takeaway food shops is simply a very good idea, and the company has established a strong brand presence in a relatively short period. And unlike some popular growth companies, Just Eat is profitable now — EPS is predicted to grow by nearly 60% this year and by nearly 50% next.
That would give us a P/E of 29 for 2017, which perhaps looks a bit much — but a PEG ratio of around 0.6 to 0.7 suggests that could still be a fair valuation for the company’s growth prospects. Rapid expansion over the next few years could mean this is just the start, and I reckon Just Eat shares could do well over the next five years.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.