LONDON -- The FTSE 100 (UKX) is up 14.5% from its lowest point of the last year. Against this advance, it can be difficult to find shares that are struggling. However, I have identified some companies currently trading within just 7% of their low for the year.
Out-of-favor shares can bounce back strongly. It is quite common for the market to write off a company too soon. Sometimes, executives prove to be better at turning around a company's fortunes than analysts are at forecasting the future.
Here are 10 companies that are trading close to their cheapest price in a long time.
Price ( in pence)
Yield (historic, %)
Market cap (in millions of pounds)
|Tesco (LSE: TSCO.L )||315||9.2||4.7||25,303|
|Shire (LSE: SHP.L )||1819||18.5||0.5||10,233|
|Burberry (LSE: BRBY.L )||1012||16.0||2.5||4,447|
|UK Commercial Property Trust||66||14.9||8.0||790|
|KSK Power Ventur||445||N/A*||0.0||710|
|Rockhopper Exploration (LSE: RKH.L )||159||N/A*||0.0||452|
|Impax Asian Environmental Markets||75||N/A*||2.0||152|
Data from Stockopedia. *Previously loss-making.
Four stood out in particular.
Fashion house Burberry is one of the strongest brands you can invest in today. The shares have also been an excellent investment. Since 2009, shares in Burberry have more than doubled. The shareholder dividend is up more than 100% on what it was three years ago.
A company with a strong brand and successful track record typically trades on a premium rating. At today's price, Burberry is trading on 16.0 times the earnings per share achieved in 2012. With 6.7% of EPS growth forecast, the company is priced at 15 times expectations for 2013.
The problem is that recent trading at Burberry has forced analysts to reduce the anticipated profit for 2013. In another company, this setback may not be such an issue. Burberry, however, is a fashion brand. If that brand has lost its cache, the company will struggle to sell its products at premium prices.
Given Burberry's track record, I'm inclined to offer it the benefit of the doubt.
Retail behemoth Tesco is one of the most talked-about shares on the market. The company's success has benefited its staff, shareholders, and customers. However, there are signs that Tesco's growth over the last 20 years may be coming to an end.
First, a January profit warning saw the shares hit hard. Tesco had made a pig's ear of Christmas as its discounting failed to attract enough customers. A series of surveys has shown Tesco losing market share to its rivals. In particular, Sainsbury's has been catching up fast.
All this was followed last week by disappointing half-year results. Tesco shocked the market by revealing a mere 1.6% rise in sales. This resulted in an 11.6% fall in profits; EPS was down 7.9%; the dividend (which has been rising for the last 27 years) was held.
I expect that the market will be much more cautious in how it rates Tesco in the future.
Shire is one of the few FTSE 100 companies that is less than 50 years old.
Five years ago, Shire made $0.62 in EPS. For 2012, this figure is expected to hit $2.03. This growth had been anticipated by the market. As the company has matured, its P/E ratio has come down. After years of earnings growth, Shire is finally trading on a reasonable P/E. At today's price, Shire is at 14.5 times the consensus estimate for 2012. This falls to 13.3 times the 2013 estimate.
Shire is a pharmaceutical company with a strong position in the ADHD, or attention deficit hyperactivity disorder, market. Shares in the company fell sharply in June. This decline came as a result of the U.S. regulators approving a generic version of Shire's Adderall XR drug. The shares fell to 1,743 pence, their low for the year.
It looks like the market is worrying over Shire's likely future earnings stream. At this point, the valuation looks finely balanced.
4. Rockhopper Exploration
Shares in Rockhopper Exploration have halved in the last six months. The company is part of a band of London-listed firms prospecting for oil around the Falkland Islands. After nearly 10 years of waiting, the Falklands story is finally being played out.
Thus far, Rockhopper has been one of the winners. The company's Sea Lion discovery is moving toward commercialization. Since the find in May 2010, Rockhopper has managed to recruit a partner with clout to bring Sea Lion onstream. Rockhopper is hoping to start producing oil from the area in 2017.
The problem is that the Falklands are not proving a happy hunting ground for other wildcatters. There have been a string of exploration failures reported by companies operating in the area. With each failure, doubts increase on whether the Falklands will ever yield more oil.
The industry sorely needs another commercial find. Until then, analysts will be drawn to valuing Rockhopper solely on the cash flows that Sea Lion will eventually produce.
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