Are These FTSE 100 Shares a Buy?

LONDON -- I have recently been evaluating the investment cases for a multitude of FTSE 100 companies.

Although Britain's foremost share index has risen 9.6% so far in 2013, I believe many London-listed stocks still have much further to run, while conversely, others are overdue for a correction. So how do the following five stocks weigh up?

Lloyds Banking Group
I am a firm believer that extensive transformation work at Lloyds  (LSE: LLOY  ) should drive solid earnings growth in future years. The bank has carried out extensive cost-cutting measures and disposals in order to repair its bombed-out balance sheet, and I expect this to yield an improving bottom line moving forwards.

The group is already a big player in the British retail banking space -- around a third of all U.K. mortgages, and 25% of savings, are tied up in the bank -- and Lloyds is set to continue investing heavily in branch refurbishments and improvements to its website to boost business.

This work helped push losses per share lower last year, to 2 pence, from 4.1 pence in 2011, and City brokers expect the company to post positive earnings figures over the medium term -- earnings per share (EPS) of 4.4 pence and 5.6 pence are expected in 2013 and 2014, respectively.

Lloyds currently trades on a price-to-earnings (P/E) ratio of 11 and 8.6 for this year and next, providing a decent discount to a forward reading of 13.1 for the broader banking sector.

BAE Systems
I believe that BAE Systems  (LSE: BA  ) is a great stock market pick for income investors. The company has steadily built yearly dividends, even during times of squeezed earnings, and forecasters expect this to continue creeping higher in coming years.

Last year's dividend of 19.5 pence was up from 18.8 pence in 2011, and this is predicted to rise to 20.4 pence this year before marching to 20.8 pence in 2014. And these prospective payments carry yields of 5.2% and 5.3% respectively, well above the 3.2% FTSE 100 average.

City analysts expect EPS to rise 9% in 2013 before dipping 1% the following year, the impact of reduced defense expenditure in traditional Western regions weighing on revenue expectations.

However, I expect increased activity in juicy emerging markets to open up great earnings potential over the longer term. BAE Systems saw orders from outside of the U.S. and U.K. leap to 11.2 billion pounds in 2012, from £4.8 billion in the previous year.

RSA Insurance Group
Insurance giant RSA Insurance Group  (LSE: RSA  ) has recently initiated a massive overhaul of its dividend policy in order to boost near-term investment, and underpin lucrative shareholder payouts further out. But I believe that uncertainty over future dividends in the meantime should prompt investors to look elsewhere for more dependable income stocks.

The company saw its combined operating ratio rise to 95.4% last year versus 94.9% in 2011, which, in turn, pushed operating profit 6% lower, to £684m. RSA is becoming increasingly bashed by rising operational and claim costs, as well as increased insurance rate competitiveness, and slashed last year's dividend to 7.3 pence, from 9.2 pence in 2011.

EPS is expected to explode 31% in 2013, according to City estimates, before growth slows to 3% the following year. Still, the company is expected to remain relatively cheap compared to a forward earnings multiple of 10.2 for the whole non-life insurance sector -- figures of 9.5 and 9.2 are pencilled in for 2013 and 2014, respectively.

However, the spectre of further earnings pressure, and consequent implications for the dividend moving forwards, represents too much of a gamble, in my opinion.

SABMiller
I reckon that global beverages behemoth SABMiller  (LSE: SAB  ) is set to shoot higher as it increases its footprint in key emerging markets.

The company -- whose portfolio of more than 200 beer brands include Peroni, Grolsch, and Pilsner Urquell -- saw revenues increase 17% in quarter three, or 8% on an organic basis, with total volumes rising 6% on year. Global lager sales rose 2%, pushed by Latin American growth of 6%, and African demand rising 4%.

City brokers anticipate EPS to have risen 4% in the year ending March 2013, with a return to double-digit growth expected over the medium term -- rises of 19% and 12% are expected in 2014 and 2015, correspondingly. In my opinion the brewer's history of generating meaty EPS growth in recent years justifies the company's current premium, with a P/E ratio of 20.3 and 18.2 for this year and next.

A rapidly improving dividend policy sweetens the deal, with an expected payout of 63 pence for the last fiscal year anticipated to rise to 74.2 pence and 83 pence in 2014 and 2015, respectively.

J Sainsbury
I think that Sainsbury's  (LSE: SBRY  ) should continue to snatch market share from its beleaguered supermarket rivals. The chain is set to drive higher as rising activity at its "online and "convenience" divisions, new store openings, and active brand-improvement drive rings up solid revenue growth.

An expected 6% increase in EPS for the year ending March 2013 is set to advance 5% in the current year before edging 6% higher in 2015.

Sainsbury's currently changes hands on a P/E rating of 12.4 and 11.7 for 2014 and 2015, which compares favorably to an average forward earnings multiple of 13 for the entire food and drug retailers sector.

As well, the supermarket is an excellent deliverer of equity income, with forecast yields of 4.6% and 4.8% well above the average for Britain's 100 largest-listed entities. The company has steadily increased the dividend for many years, and I expect this to continue as earnings ramp up.

Zone in on other sterling stocks
If you already hold shares in these companies, check out this newly updated special reportwhich highlights a host of other FTSE winners identified by ace fund manager Neil Woodford.

Woodford -- head of U.K. Equities at Invesco Perpetual -- has more than 30 years' experience in the industry, and boasts an exceptional track record when it comes to selecting stock market stars.

The report, compiled by The Motley Fool's crack team of analysts, is totally free, and comes with no further obligation. Click here now to download your copy.

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