10 Shares Selling at Discount Prices

LONDON -- 2012 has been a good year for stock market investors. Despite all the economic negativity, the FTSE 100 (UKX) is up 9.8% in the last year. Not all of the U.K.'s blue-chip shares have kept up, however; some have been real losers in the last 12 months.

The contrarian in me says that these laggards could reward further research. A lower share price often brings with it a higher dividend yield. If sentiment improves, a buyer could make a capital gain and earn a solid income along the way.

These are the 10 largest companies that have trailed the FTSE 100 by 10% or more over the last year.

Name

Price (p)

Under-

performance

P/E (forecast)

Yield (forecast, %)

Market cap (£m)

Royal Dutch Shell

2,148

(11.6)

8.3

5.0

134,160

BP

429

(11.0)

7.2

5.5

81,366

Vodafone

158

(15.9)

10.6

6.3

77,496

GlaxoSmithKline

1,337

(11.3)

11.8

5.5

65,790

Rio Tinto

2,941

(15.0)

9.1

3.4

54,777

BG

1,057

(26.3)

12.5

1.5

36,148

Tesco

323

(26.8)

10.0

4.6

25,838

Glencore International

335

(20.4)

10.2

2.6

23,772

Anglo American

1,707

(33.2)

12.3

2.9

23,575

Shire

1,794

(20.3)

14.2

0.6

10,052

Data from Stockopedia and Morningstar.

Four shares stood out in particular:

1. Shell
I do not know of a share in the FTSE 100 that deserves the title "blue chip" more than Royal Dutch Shell  (LSE: RDSB  ) . £135 billion market cap. 90,000 employees. Over 100 years of history. A dividend that has not been cut since World War II.

In 2011, that big dividend and big market capitalization meant that Shell paid out more cash than any other FTSE 100 company. So, why has Shell fallen behind the rest of the market?

It appears that investors have become concerned at Shell's growth prospects. Analysts are forecasting a similar level of profitability for 2012 and 2013. Despite the lack of expected growth, the current forward P/E of 8.3 looks a little mean for a company of Shell's calibre.

The dividend is expected to keep on coming, meaning this titan's shares have not presented better value since the worst of the financial crisis.

2. BP
At the start of 2012, shares in BP  (LSE: BP  ) (NYSE: BP  ) traded for around 500 pence. In the last six months, however, the shares have struggled to get past 450 pence. In the year, the highest price that shares have sold for is 504 pence. The lowest is 392 pence. For such a large blue-chip share, that's a lot of volatility.

BP is still being buffetted by aftershocks from the Gulf of Mexico disaster in 2010. Earlier this week, the shares fell back on news that one U.S. regulator was suspending BP's permission to secure future government contracts.

Surprisingly, this only had a minor effect on BP's share price. To me, this suggests that many shareholders believe BP represents long-term value at today's price.

With the company's long-term future in Russia now apparently secured, there is more certainty in BP's business than there has been for over two years.

To cap it, BP's dividend has also been rising fast. Analysts expect a 35.2% dividend hike for the full year, followed by another 10.9% rise in 2013.

3. Tesco
Tesco
  (LSE: TSCO  ) is a FTSE 100 record holder. No other company in the blue-chip index has a longer history of consecutive dividend increases. However, there are signs that this streak may be about to end.

Shares in Tesco fell hard in January. Management reported that the company had failed to sell enough discounted items during the key Christmas trading period. This news saw the shares lose 20% of their value in two weeks. Before this announcement, analysts expected Tesco to make earnings per share (EPS) of 39 pence for 2013. Today, that forecast has fallen to just 32.3 pence.

Worryingly, Tesco has been losing market share to its old rival Sainsburys. Tesco is a massive business. How quickly can it be turned around? 

At the half-year stage, Tesco reported a fall in EPS of 7.9%. The interim dividend was held at 4.63 pence per share. 

Analysts expect that the full-year profits will be 5.5% behind last year's figure. If the dividend is not increased with final results, Tesco will lose its hard-earned dividend-raising record.

4. Vodafone
Shares in Vodafone  (LSE: VOD  ) are down 13.4% in the last three months. That fall has been exaggerated by the shares recently going ex-dividend. That alone accounts for 1.7% of the decline.

However, there are reasons to expect Vodafone shares could pick up in the near future -- 1.5 billion reasons to be precise. Before the year is up, Vodafone will be receiving a £2.4 billion special dividend from its U.S. joint-venture, Verizon Wireless; £1.5 billion of this will be used buying back its own shares in the market.

Vodafone shares are currently trading at a low for the year. I expect that when this massive demand for shares hits the market, Vodafone shares will rise. In the meantime, there is a chunky yield to enjoy. Vodafone is expected to pay 9.9 pence of dividends this year. The share buyback will ensure Vodafone can pay a higher per share dividend at the same cost in the future.

Vodafone looks like a great buy for income and capital growth.

Warren Buffett is a man who loves buying shares when other investors have been rushing to sell. His ability to repeatedly buy companies cheaply has made him one of the world's richest men. Recently, Buffett has been buying shares in one U.K.-listed company. If you want to find out which share this super-investor has been buying then click here to get the free Motley Fool report "The One U.K. Share Warren Buffett Loves."

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