Is Now the Time to Buy Amec?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Amec  (LSE: AMEC  ) to determine whether you should consider buying the shares at 1,090 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Year EPS Growth

Projected P/E

PEG

Yield

3-Year Dividend Growth

Dividend Cover

Amec

1,090p

50%

13.8

1.3

3%

73%

2.2

The consensus analyst estimate for this year's earnings per share is 78.4 pence (11% growth) and dividend per share is 33.7 pence (13% growth).

Trading on a projected P/E of 13.8, Amec does appear cheaper than its peers in the oil services sector, which are currently trading on an average P/E of around 16.8.

Furthermore, Amec's relatively low P/E and double-digit growth rate give a PEG ratio of around 1.3, which implies the share price is only slightly expensive for the near-term earnings growth the firm is expected to produce.

In addition, Amec supports a 3% yield, which is greater than the oil services sector average of 2.2%. Indeed, Amec has a three-year compounded dividend growth rate of 73%, implying the payout could continue to stay above that of its peers.

Lastly, the dividend is just over twice covered, giving Amec plenty room for further payout growth.

Amec has produced strong historic growth, will this continue?
Despite obvious economic headwinds, Amec has still managed to grow its earnings significantly over the past few years -- and I believe this trend is set to continue.

Currently, I believe there is no sign of Amec's growth slowing down. Indeed, as of October 2012, the company reported a strong order pipeline of £3.6 billion and has recently won another contract in Kuwait, which is worth a further $500 million.

In addition, Amec is seeking acquisitions to complement organic growth. For example, the company has recently expanded its nuclear-engineering division with a £137 million acquisition of Serco's nuclear-services business.

Furthermore, Amec has a net cash position of £124 million, which gives the company plenty of firepower for further acquisitions.

That said, there could be some problems ahead for the company. You see, Amec is a specialist engineering company focusing on unconventional oil and gas extraction and nuclear energy, which although highly lucrative can be very unpredictable sectors to work in.

Nonetheless, I believe Amec still has a strong position in its energy services sector and in my opinion, Amec does not deserve the lower valuation placed on it relative to the rest of its peers.

So overall, I believe now looks to be a good time to buy Amec at 1,090 pence.

More FTSE opportunities
As well as Amec, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held by Britain's Super Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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