Today I’ll be taking a closer look at semiconductor and software design company ARM Holdings, Scottish energy firm SSE, and multinational publishing giant Pearson. Would it be wise to invest in these companies right now?
Unlike many of its FTSE 100 brethren, chip-designer ARM Holdings (LSE: ARM) has shrugged-off any prospects of economic uncertainty with its shares holding up well in the post-Brexit carnage. Indeed, as the majority of the tech firm’s revenues come from overseas, a weaker currency could actually help ARM’s bottom line.
Analysts are expecting ARM’s growth story to continue in the medium term, with 45% earnings growth predicted for this year and a futher 15% improvement pencilled-in for 2017. This would leave the shares trading on an expensive-looking 32 times forecast earnings for the current year, falling to 28 times for the year to December 2017. But I believe the premium rating is justified given the firm’s track record of strong growth, and the P/E rating well below historical levels.
ARM isn’t the only blue chip firm to come away from the Brexit vote unscathed. Energy provider SSE (LSE: SSE) has been relatively calm since 23 June as investors look for a safe haven in the defensive utilities sector. Revenues and earnings have been relatively stable in recent years, and there has never been much hope of significant capital growth in this sector, as solid reliable income provides the main attraction.
The Perth-based energy supplier increased its dividend payout by 1.1% to 89.4p, from 88.4p for the year to March 2016 and the company remains a firm favourite with low-risk income seekers. Market consensus expects dividend payouts to increase to 90.47p per share for FY2017, with a further improvement to 92.28p for the year to March 2018. SSE remains an attractive investment for those seeking chunky dividends with relatively low risk.
Wait and see
Publishing and education group Pearson (LSE: PSON) has endured a tough year with the firm’s shares taking a dive after a profit warning last October, and it’s still trading 21% lower than a year ago despite a decent recovery since the start of 2016. The company has been facing challenges as it transitions from print-based content to digital, with revenues under further pressure from free online educational content.
Analysts in the City expect underlying profits to take a hit this year, predicting a 23% decline in earnings to £446m, before posting a 15% rebound to £514 for the year to December 2017. Dividend payouts look attractive at first glance with a prospective yield of 5.3% for 2016, but the 52.04p payout is only just covered by forecast earnings. In my view the dividends could be under threat, and I would wait at least until the company’s transformation is complete before giving the shares another look.
Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.