Is Now the Time to Buy GKN?

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 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 GKN (LSE: GKN.L) to determine whether you should consider buying the shares at 206 pence. I am assessing each company on several ratios:

• Price-to-earnings ratio: Does the share look good value when compared against its competitors?
• P/E-to-growth (PEG) ratio: Does the share look like a good value when 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:

The consensus analyst estimate for next year's earnings per share is 24.47 pence (8% growth), and dividend per share is 7 pence (17% growth).

Trading on a projected P/E of 8.2, GKN appears cheaper than its peers in the automobiles and parts sector, which are currently trading on an average P/E of 10.1. GKN's low P/E and single-digit growth rate give a PEG ratio of around 1, which implies the share price is appropriate for GKN's expected earnings growth.

Offering a 3% yield, the dividend is average for the sector, which as a whole currently yields 3% as well. However, GKN has a three-year compounded dividend growth rate of 33%, implying the payout could soon overtake that of GKN's peers. Indeed, the dividend is nearly four times covered, giving GKN plenty of room for further payout growth.

GKN looks like a good value. What about future revenue?
I like buying stocks that are good value for money, and right now GKN looks like one of these. At the current share price, I believe the economic slowdown is priced into GKN. Indeed, the firm is still forecast to grow earnings and raise its dividend this year, despite the obvious economic headwinds.

Recent years have seen GKN embarking on an acquisition spree, which has significantly increased the group's product base and profit margins. GKN now looks significantly stronger than it was in the past -- with a much larger global client base. Its most recent acquisition, Volvo Aerospace, is likely to be very profitable over the next few years, as I reckon the subsidiary's major customers, Airbus and Boeing, are going to increase their production levels. In fact, I'm convinced greater activity among civil-aerospace clients should more than offset any reduced demand by the U.S. military for GKN's services.

GKN is seeing lower demand within its light-vehicle sales, which are down about 5% this year. However, the company has strong recurring revenues within its farming and oil services divisions, which should continue to grow as global demand for food and oil increases.

With the decline in light-vehicle and military-aircraft sales being more than offset by advances in other divisions, I believe now looks to be a good time to buy GKN at 206 pence.

More FTSE opportunities
As well as GKN, I am also positive on the blue chips highlighted in "Top Sectors for 2012." This special report sees three Motley Fool Share Advisor analysts each studying a favorable industry -- and spotlighting a particular share to consider for this year and beyond. You can read the report today by requesting it for free, but hurry -- it's available for a limited time only.

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