Published in Investing on 20 June 2012
These shares are near the cheapest they have been for a year.
Unless the market is gripped by irrational exuberance, there will always be some shares trading at depressed prices. I trawled the market to find companies whose share price is within 5% of its lowest point in a year. Investors have to determine what has led a share price to fall and what the probability is that a significant turnaround could occur.
A list like this should be used as a starting point for further research. These shares have previously been higher and could rise significantly if sentiment improves. Alternatively, the picture could worsen, driving further falls.
A list like this should be used as a starting point for further research. These shares have previously been higher and could rise significantly if sentiment improves. Alternatively, the picture could worsen, driving further falls.
| Company | Market Cap (£m) | Share price (p) | % off 52-week low | P/E | Yield % |
|---|---|---|---|---|---|
| Tesco (LSE: TSCO) | 24,354 | 303 | 2.9 | 8.9 | 4.9 |
| Glencore International (LSE: GLEN) | 23,136 | 334 | 2.4 | 7.5 | 2.9 |
| Wm Morrison (LSE: MRW) | 6,892 | 278 | 5.0 | 10.7 | 3.9 |
| Resolution (LSE: RSL) | 2,707 | 197 | 3.3 | 7.5 | 10.1 |
| Songbird Estates (LSE: SBD) | 1,586 | 102 | 1.8 | n/a | n/a |
| Man Group (LSE: EMG) | 1,330 | 74 | 3.2 | 18.0 | 14.4 |
| African Minerals (LSE: AMI) | 1,108 | 336 | 1.3 | n/a | n/a |
| Genel Energy (LSE: GENL) | 805 | 605 | 3.2 | n/a | n/a |
| APR Energy (LSE: APR) | 564 | 722 | 1.6 | n/a | 0.9 |
| Fidessa (LSE: FDSA) | 550 | 1,495 | 3.9 | 18.5 | 2.5 |
| Computacenter (LSE: CCC) | 500 | 325 | 4.4 | 8.9 | 4.6 |
| Shepherd Neame (LSE: SHEP) | 497 | 625 | 0.8 | 12.6 | 3.8 |
| Halfords (LSE: HFD) | 476 | 239 | 2.4 | 7.0 | 9.2 |
| Shanks (LSE: SKS) | 308 | 78 | 0.7 | 11.4 | 4.4 |
| London Mining (LSE: LOND) | 292 | 212 | 2.7 | n/a | n/a |
Here are three shares I found particularly interesting.
1) Tesco
In the entire FTSE 100 (UKX) index, there is not a single company with a lower price-to-earnings (P/E) ratio, higher dividend yield and better forecast profit growth than Tesco.
The shares trade on 8.8 times forecast earnings for 2013. The forecast dividend yield is 4.9%.
21 FTSE 100 stocks are expected to pay a higher dividend than Tesco. The same number of FTSE 100 companies trade on a lower forward P/E. Only eight FTSE 100 companies trade on both a higher expected dividend and lower forward P/E than Tesco. None of those eight companies is expected to match Tesco's profit growth. At today's price, Tesco represents a unique proposition of blue-chip value, income and growth.
Much of the investment discussion on Tesco describes the company as "struggling". That pessimism is not matched by the professional analyst community. They expect Tesco to deliver modest eps growth for 2013 of 1.0%, followed by 7.7% growth for 2014. The dividend is forecast to rise 1.2% for 2013 and by another 7.9% for 2014.
Investors may have been encouraged by Tesco's recent announcement that it is withdrawing from the Japanese market. This decision leaves management more focused on the company's core markets. Worryingly, trading statements from rival firms such as Sainsbury's (LSE: SBRY) suggest Tesco is losing UK market share. Tesco's success in the UK market had driven international expansion and shareholder returns. The company's current valuation suggests investors expect Tesco rivals to continue to gain ground on the market leader.
The shares trade on 8.8 times forecast earnings for 2013. The forecast dividend yield is 4.9%.
21 FTSE 100 stocks are expected to pay a higher dividend than Tesco. The same number of FTSE 100 companies trade on a lower forward P/E. Only eight FTSE 100 companies trade on both a higher expected dividend and lower forward P/E than Tesco. None of those eight companies is expected to match Tesco's profit growth. At today's price, Tesco represents a unique proposition of blue-chip value, income and growth.
Much of the investment discussion on Tesco describes the company as "struggling". That pessimism is not matched by the professional analyst community. They expect Tesco to deliver modest eps growth for 2013 of 1.0%, followed by 7.7% growth for 2014. The dividend is forecast to rise 1.2% for 2013 and by another 7.9% for 2014.
Investors may have been encouraged by Tesco's recent announcement that it is withdrawing from the Japanese market. This decision leaves management more focused on the company's core markets. Worryingly, trading statements from rival firms such as Sainsbury's (LSE: SBRY) suggest Tesco is losing UK market share. Tesco's success in the UK market had driven international expansion and shareholder returns. The company's current valuation suggests investors expect Tesco rivals to continue to gain ground on the market leader.
2) Fidessa
Don't be fooled by the current low in Fidessa's share price. The financial software specialist is a great growth story.
Fidessa provides multi-asset trading and analytics software to major investment banks and asset managers.
Fidessa has established itself in an industry where technology solutions have enjoyed increased demand. Fidessa software might be used by a stockbroker to send your trades to the market and then report the transaction back to you electronically. Fidessa's products are also used by the increasingly significant algorithmic trading desks.
In the last five years, the company has delivered compound eps growth of 21.2% per annum. The dividend growth averages out at 22.7% every year.
It would appear Fidessa has suffered some rating compression. Five years ago, the company traded on a forward P/E in the high 20s. Although growth was delivered, the market is now placing a lower rating on Fidessa shares. Today, the company trades at 18.1 times the consensus 2012 eps forecast and 16.7 times the estimate for 2013.
Shares in the company have fallen 21% in the last 12 months. This might be explained by the previous high rating and the fact that analysts are now expecting single-digit growth for the next two years. For the shares to rise from here, either Fidessa will have to deliver better growth or the market will have to start expecting it again.
Fidessa provides multi-asset trading and analytics software to major investment banks and asset managers.
Fidessa has established itself in an industry where technology solutions have enjoyed increased demand. Fidessa software might be used by a stockbroker to send your trades to the market and then report the transaction back to you electronically. Fidessa's products are also used by the increasingly significant algorithmic trading desks.
In the last five years, the company has delivered compound eps growth of 21.2% per annum. The dividend growth averages out at 22.7% every year.
It would appear Fidessa has suffered some rating compression. Five years ago, the company traded on a forward P/E in the high 20s. Although growth was delivered, the market is now placing a lower rating on Fidessa shares. Today, the company trades at 18.1 times the consensus 2012 eps forecast and 16.7 times the estimate for 2013.
Shares in the company have fallen 21% in the last 12 months. This might be explained by the previous high rating and the fact that analysts are now expecting single-digit growth for the next two years. For the shares to rise from here, either Fidessa will have to deliver better growth or the market will have to start expecting it again.
3) Songbird Estates
Songbird Estates is one of the largest companies listed on AIM. Unfortunately, that means the shares are not eligible for ISA investment.
Songbird's share register is dominated by three overseas investment groups. Their combined holdings total 68% of the shares in issue. As a result, there is not a lot of liquidity in the company's shares.
It appears that the company's small free float and lack of dividend are deterring investors.
The company's operations have traditionally focused on Canary Wharf. Songbird owns a majority stake in Canary Wharf Group, owners of the eponymous tower. The Canary Wharf estate spent a long time being derided as a white elephant. This changed in the mid-90s when the working population there more than doubled in four years. The company is now diversifying beyond Canary Wharf. Such large-scale construction projects are long-term in their nature.
Songbird's share register is dominated by three overseas investment groups. Their combined holdings total 68% of the shares in issue. As a result, there is not a lot of liquidity in the company's shares.
It appears that the company's small free float and lack of dividend are deterring investors.
The company's operations have traditionally focused on Canary Wharf. Songbird owns a majority stake in Canary Wharf Group, owners of the eponymous tower. The Canary Wharf estate spent a long time being derided as a white elephant. This changed in the mid-90s when the working population there more than doubled in four years. The company is now diversifying beyond Canary Wharf. Such large-scale construction projects are long-term in their nature.
Perhaps it is the absence of a fast payout that is seeing investors send their cash elsewhere. However, for long-term investors Songbird looks to be one of the best ways to get exposure to the multi-decade boom London is enjoying. Other companies looking to exploit London's construction and development bonanza include Capco (LSE: CAPC) and Quintain Estates and Development(LSE: QED).
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Further investment opportunities:
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> David does not own shares in any of the above companies. The Motley Fool owns shares in Tesco and Halfords.
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