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Should You Buy Smith & Nephew Today?

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By Royston Wild, The Motley Fool

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LONDON — Shares in Smith & Nephew  have risen steadily in recent months, and were recently up 11% in the year to date.

And I believe that the company’s concerted drive toward higher-growth areas and regions should drive the stock higher as earnings and dividends head northwards. Citi have plonked a 797 pence price target on the company’s stock, providing chunky upside from current levels.

Transformation plan to deliver excellent rewards
Smith & Nephew is changing its product mix to focus on more lucrative markets, and late last year purchased Healthpoint Biotherapeutics — a leader in the area of wound management — as it seeks to address sales difficulties in other areas of the group

The health care giant is also looking to significantly boost its operations in lucrative developing markets to offset weakness in its traditional geographies. The company saw growth of just 1% in the US in quarter four, it announced in February, 2% in its Other Established Markets, and 14% in its Emerging and International Markets division.

The firm announced the acquisition of Brazilian sports medicine, trauma product and orthopaedic reconstruction distributor Pro Cirugia Especializada earlier this month. And the company’s healthy balance sheet should support further M&A activity moving forward.

Earnings growth expected to accelerate
Earnings per share are set to rise 3% in 2013 to 51 pence, according to City forecasters, before picking up speed next year to rise 9% to 55 pence.

The company has registered solid annual earnings growth dating back a number of years, and this has helped it to develop a progressive dividend policy — indeed, the company hiked its final dividend 50% to 16.2 cents (10.5 pence) per share last year, providing a total dividend of 26.1 cents.

And analysts expect this to keep heading higher, with total payouts of 17.6 pence and 19.3 pence predicted for this year and next, respectively. Dividend yields for these years are expected to come in below the current 3.3% FTSE 100 average, at 2.3% and 2.6%, respectively, although rapid growth could see it shoot above the average in coming years. And these payouts are extremely well protected, with coverage of 2.9 times for the next two years well above the widely regarded benchmark of 2 times.

Smith and Nephew currently changes hands on a P/E rating of 14.9 and 13.7 for 2013 and 2014, respectively, providing a discount to a forward earnings multiple of 15 for the entire health care equipment and services sector. In my opinion the likelihood of solid earnings growth and robust dividend increases make the company an excellent pick for investors.

The canny guide for clever investors
If you already hold shares in Smith and Nephew, check out this newly updated special report that highlights a host of other FTSE winners identified by ace fund manager Neil Woodford.

Woodford — head of UK Equities at Invesco Perpetual — has more than 30 years’ experience in the industry, and has identified two other fantastic health care plays in the report

From: http://www.dailyfinance.com/2013/04/11/should-you-buy-smith-nephew-today/

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Should You Buy Reckitt Benckiser Today?

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By Royston Wild, The Motley Fool

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LONDON — I believe that shares in Reckitt Benckiser  are vastly overpriced and are overdue for a weighty correction. The stock has risen 19% since the turn of the year, and currently trades at a 35% premium to Canaccord Genuity‘s 3,425 pence target price.

The firm is a giant in the household cleaning product and non-prescription health-care space and whose global brands include Dettol, Clearasil, Nurofen, and Durex, among others. But in my opinion, its loss of exclusivity on its Suboxone drug — which is used to combat narcotics addiction — could harm revenues moving forward and sour investor appetite for the company.

Rivals gear up for assault
The U.S. Food and Drug Administration (FDA) halted Reckitt Benckiser‘s patent on the anti-addiction product, a move that will herald the entry of cheaper, generic rivals to the Suboxone brand and harm sales over the medium to long term. Suboxone tablet sales in the U.S. represented around 5% of the firm’s total revenues last year, while film made up closer to 10% of group turnover.

Indeed, BioDelivery Sciences International announced last month that it plans to file an NDA with the FDA for its Bunavail film by July, which is considered a massive threat to Suboxone moving forward. It reckons that the new film could grab between 25% and 35% of the branded market, and plans to launch the product next year.

Earnings pressure set to materialize
Broker Liberum Capital expects earnings per share (EPS) to nudge 1% lower in 2013 to 262 pence, before the effect of falling Suboxone revenues drive EPS 4% lower to 252 pence. The company currently trades on a price-to-earnings (P/E) ratio of 17.7 and 18.5 for this year and next, trading at a premium to a forward earnings multiple of 14.5 for the wider household goods and home construction sector.

Reckitt Benckiser has steadily built the dividend in recent years — 2012’s 134 pence shareholder payout was up 7% from the previous year — but yields are expected to remain around the 3.3% FTSE 100 average over the medium term. A figure of 3.1% and 3.3% are expected by Liberum’s analysts in 2013 and 2014, respectively.

These prospective payments provide coverage just below the safety watermark of two times for these years, although I believe that the effect of falling earnings could cast doubt on the progress of its dividend policy moving forward.

The prescription for plump returns
Although Reckitt Benckiser presents too much risk in my opinion, check out this newly updated special report that 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 has identified two other fantastic pharmaceutical specialists in the report set to deliver spectacular investor returns.

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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Source: FULL ARTICLE at DailyFinance

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The Stock Picker's Guide to GlaxoSmithKline

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By Tony Reading, The Motley Fool

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LONDON — Successful investors use a disciplined approach to picking stocks, and checklists can be a great way to make sure you’ve covered all the bases.

In this series I’m subjecting companies to scrutiny under five headings: prospects, performance, management, safety and valuation. How does GlaxoSmithKline  measure up?

1. Prospects
The pharmaceutical industry is riding a demographic wave of aging populations in developed countries and increasing wealth in developing ones. However, many companies are suffering competition from generic manufacturers as patents expire.

GSK is one of the world’s biggest drug makers, giving it the firepower to spend heavily on R&D, and it has a promising pipeline. Vaccines and consumer health care products (30% of sales) provide stability and the latter helps GSK‘s big push into emerging markets.

2. Performance
Turnover has been gently declining in recent years, but this trend is expected to reverse as new drugs come on stream from the end of this year. Operating profit has been variable, but GSK earns gross margins above 20%.

2.5 billion pounds per year has been stripped out of costs in recent restructurings, and the company expects to strip another 1 billion pounds by 2016.

3. Management
Sir Andrew Witty started with the firm as a graduate trainee and has been CEO since 2008. He has steered the strategy of diversification, penetration of emerging markets, and cost-cutting. He also dealt effectively and decisively with past regulatory abuses in the U.S.

The chairman is City grandee Sir Christopher Gent, who took Vodafone from a start-up to FTSE 100 membership. Together with a former Goldman Sachs M&A banker as finance director, the board is a formidable deal-making machine, but perhaps not excessively risk-averse.

Directors have substantial shareholdings.

4. Safety
GSK‘s balance sheet is its Achilles’ heel. Net gearing is 240%. However, the debt is mostly long term, with about half having a maturity over five years. Reassuringly, interest cover is a healthy nine times.

15 billion pounds of GSK‘s 6.7 billion pound equity is represented by intangibles, so tangible net assets are negative. But nearly 10 billion pounds of the intangibles is patents and brands, which have real monetary value.

Cash conversion is good, with 90% of GSK‘s profit before tax flowing through as cash. Fixed costs of interest, dividends, capex and R&D still leave surplus for share buybacks.

5. Valuation
A historic price-to-earnings ratio of 16.8 looks expensive, but it drops to 13.2 on a prospective basis. The stock is yielding 4.8%, rising to 5.1% next year, and the fat yield in a defensive sector is the reason many investors hold the stock.

GSK has a superlative track record of rising dividends over 20 years, though sometimes that’s meant dividend cover has dropped to 1.25 times.

Conclusion
Despite its over-geared balance sheet and the industry’s patent cliff, GSK is a relatively safe play with a juicy yield to reward investors, and promising prospects.

One of GSK‘s biggest shareholders is Invesco Perpetual‘s star fund manager Neil Woodford. Nearly a quarter of his 22 billion pound funds are invested in just three companies in the

Source: FULL ARTICLE at DailyFinance

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Should You Buy easyJet Today?

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By Royston Wild, The Motley Fool

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LONDON — Shares in budget airline easyJet  have steadily strode higher since the middle of 2011, and in the past six months alone have leapt more than 66%, striking all-time highs of 1,128 pence in the process.

And I believe that the stock still has much further to run owing to bursting growth prospects and an improving ability to grab custom from rival operators. Indeed, just today Morgan Stanley hiked its target price for the carrier’s shares by almost a third, to 1,375 pence, affirming easyJet’s chunky upside potential.

Airline ready to boost market share
easyJet announced in last week’s trading statement that it expects revenues per seat to have risen 8.5% in the September-March period, beating a projected rise of between 6% and 8%, and propelled by stronger-than-forecast late bookings in the run up to the Easter break.

Although overall capacity rose 3.3% from the corresponding 2012 period, falling short of a projected 3.5% increase, this was caused by weather-related cancellations. And passenger numbers rose 5.3% in March, it added.

The company halved first-half losses year-on-year, which is now predicted to come in between £60 million and £65 million. Indeed, cost per seat (excluding fuel) rose 3.5%, at the lowest point of estimates due to the firm’s effective cost-management plan during the winter.

I fully expect easyJet to sustain future growth by grabbing market share from other major industry players. Higher-cost rivals such as Iberia and Air France are reducing the number of routes served, as well as flight frequency on the remaining routes, giving rivals such as easyJet room to muscle in.

Furthermore, I believe airlines with the capacity to offer cheaper services are likely to remain in vogue while the beleaguered economic backdrop in Europe continues to strike travellers’ wallets.

Earnings growth expected to soar
Broker Investec expects earnings per share to explode 35% in the year ending September 2013, to 83.4 pence, before galloping 12% higher the following year to 93.1 pence.

The airline currently changes hands on a P/E rating of 12.4 and 11.1 for 2013 and 2014 respectively. This represents a healthy discount to a forward earnings multiple of 13.1 for budget airline rival Ryanair Holdings, and 17.6 for the wider travel and leisure sector.

As well, easyJet’s status as a value stock is exemplified by a price/earnings to growth readout of 0.4 and 0.9 for this year and next. Any value below one is considered excellent value for money.

The canny guide for clever investors
If you already hold shares in easyJet, check out this newly updated special report that 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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…read more

Source: FULL ARTICLE at DailyFinance

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Should You Buy Kingfisher Today?

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By Royston Wild, The Motley Fool

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LONDON — Shares in Kingfisher  have been unable to track the FTSE 100 higher in recent months, the effect of patchy consumer data in its main-end markets capping investor appetite.

Although the outlook remains cloudy for the multinational retailer, I believe that Kingfisher — whose stable of retail outlets include B&Q and Screwfix — remains a choice pick for income investors seeking reliable dividends, while its cost-cutting scheme should help to bolster the balance sheet and drive earnings higher.

Retailer tipped to bounce back following difficult year
The company announced in its full-year results last month that group sales slumped 2.4% in the year ending February 2013, to 10.6 billion pounds. This, in turn, drove adjusted pre-tax profit 11.4% lower, to 781 million pounds. Kingfisher said that a combination of poor weather in the U.K., weak consumer confidence in its key territories, and adverse currency movements all weighed on performance last year.

However, the retailer has still managed to build a solid platform upon which to underpin long-term growth — Kingfisher’s self-help initiative should help to weather further short-term weakness and create a more efficient machine beyond this, while it also eliminated 88 million pounds worth of net debt and emerged the year with 38 million pounds in net cash.

City analysts expect earnings per share (EPS) to bounce back from this year onwards – last year’s 11% fall, to 22 pence, is predicted to bounce 7% higher, to 24 pence in 2014, before accelerating 11% the following year, to 27 pence.

Kingfisher currently trades on a P/E rating of 12.2 and 10.9 for 2014 and 2015, respectively, providing a significant discount to a prospective earnings multiple of 18.6 for the wider general retailers sector.

A decent dividend play
On top of the possibility of healthy earnings growth, the retail group also offers investors excellent dividend prospects. Kingfisher has a steady record of building shareholder payments, even in times of sales pressure — despite last year’s double-digit EPS fall, the firm still increased the dividend 7%, to 9.5 pence.

And brokers expect this to rise to 10.1 pence this year, before increasing to 11.1 pence in 2015, carrying yields in excess of the 3.2% FTSE 100 average. A dividend yield of 3.5% for 2014 is predicted to rise to 3.8% the following year.

The firm’s ability to keep stakeholder returns rolling can be attributed to its commitment to providing stellar dividend coverage, giving investors peace of mind over future payout levels. Dividend cover of 2.4 times for both of the next two years is comfortably ahead of the generally regarded security benchmark of two times.

Zone in on other sterling stocks
If you already hold shares in Kingfisher, check out this newly updated special report, which 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 …read more

Source: FULL ARTICLE at DailyFinance

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Should You Buy Weir Group Today?

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By Royston Wild, The Motley Fool

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LONDON — Shares in Weir Group  have heavily retreated over recent days as fresh eurozone worries have whacked investor confidence, the firm’s stock scaling back from the all-time peak of 2,474 pence hit last week.

However, I believe that the specialist pump and valve manufacturer could be set to experience negative earnings pressure in the near term, as difficulties in its key minerals and oil and gas markets could weigh on demand for Weir’s products and services.

Rising aftermarket helps to drive revenues
Weir’s full-year results release last month showed group revenues rise 11% to £5.5 billion, which in turn helped to drive 2012 pre-tax profit 12% higher to £443 million.

The company’s commitment to margin expansion also helped to boost an improving bottom line. Weir saw groupwide margins improve by 110 basis points in 2012 to 19.1%, prompted by a healthy lift in aftermarket revenues — these rose to 57% of total orders last year from 52% the year before. Indeed, lucrative after-sales activity should underpin the group’s strength over the long term.

Falling orders paint worrying outlook
However, I believe that weakness in its key minerals and oil and gas divisions could put a pressure on the top line in the meantime. Group order input slipped 2% in 2012 to £2.4 billion, and 9% on a like-for-like basis, due to lower input from original equipment manufacturers in the second half of the year.

City analysts expect earnings per share to edge just 3% higher in 2013 to 154 pence, before picking up the pace to post 9% growth in 2014 to 168 pence.

Weir Group currently carries a P/E rating of 14.2 and 13 for 2013 and 2014 respectively, bang in line with the prospective earnings multiple of 14.2 for the entire industrial engineering sector.

Under-par dividends expected to last
The firm is committed to building a lucrative dividend policy, and last year’s 38 pence payout was up 15.2% from 2011. And forecasters expect this to come in at 41.1 pence in 2013, an 8.2% increase. This is then expected to rise 9.5% next year to 45 pence.

These payments are also well protected with coverage of 3.7 times expected through to end-2014, well above the safety watermark of 2. However, these payments provide yields well below the 3.5% FTSE 100 average, with 2013 and 2014 yields predicted at 1.8% and 2%, respectively.

Given the threat of deteriorating end markets on Weir’s earnings prospects, combined with the lack of a meaty dividend, I believe that the engineering play lacks a compelling investment case at the current time.

The canny guide for clever investors
So although Weir Group presents too much risk at current prices in my opinion, this newly updated special report featuring ace fund manager Neil Woodford highlights a host of other red-hot FTSE winners offering stunning value for money.

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 …read more
Source: FULL ARTICLE at DailyFinance

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Should You Buy J Sainsbury Today?

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By Royston Wild, The Motley Fool

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LONDON — Shares in supermarket heavyweight J Sainsbury have leapt higher in recent weeks, spiking more than 16% from mid-January’s multimonth lows to recent highs around 375 pence — the loftiest price in almost two years.

Sainsbury’s continues to grab market share from its main rivals, particularly other London-listed plays Tesco and Wm. Morrison, which is crucial during tough times for Britain’s retailers. And I expect the firm to ring up accelerating sales momentum over the long term, bolstered by new store openings, surging activity at its online and “convenience” businesses, and rising demand for its non-edible products. Further, Sainsbury’s multiyear brand development program is also paying off handsomely, helped by the recent horsemeat scandal that has thumped customer confidence in Sainsbury’s competitors.

Latest trading numbers confirm rising earnings prospects
The supermarket giant announced last week that total sales rose 7.1% in the fourth quarter, accelerating from 3.9% in Q3 and delivering full-year growth of 4.6%. And on a like-for-like basis, sales rose 4.2% in October and December, up from third-quarter growth of 1.5% and pushing total annual growth 2.1% higher.

These rising revenues are expected to maintain Sainsbury’s multiyear growth pattern. According to City analysts, a 6% earnings-per-share rise to 30 pence in the year ending March 2013 will be followed by a 5% increase in 2014 to 31 pence. And a further 6% increase to 33 pence is penciled in for 2015.

Indeed, these stellar earnings prospects are set to drive the retailer further away from the current forward P/E reading of 13.2 for the broader food and drug retailers sector. Brokers say an earnings multiple of 12.6 for this year is predicted to drop to 12.1 and 11.4, respectively, in 2014 and 2015.

Stock up on delectable dividends
The prospect of bigger shareholder payouts seals the investment case, in my opinion, with the retailer’s progressive dividend policy expected to produce further payout increases. Following the 7% dividend increase to 16.1 pence last year, analysts are predicting a payout of 16.8 pence this year to be followed by dividends of 17.4 pence and 18.1 pence, respectively, in 2014 and 2015. And these prospective payments carry respective yields of 4.5%, 4.6%, and 4.8% for the next three years, comfortably beating the current FTSE 100 average.

Although dividend coverage is expected to remain stable around 1.8 times during this period — just south of the perceived safety target of two times — I believe that Sainsbury’s robust earnings projections, combined with its proven commitment to dividend-building, should copper-bottom investor confidence.

The canny guide for clever investors
If you already hold shares in J Sainsbury, check out this newly updated special report, which 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 …read more
Source: FULL ARTICLE at DailyFinance

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AstraZeneca: The High-Yield Biotech Play

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By Tony Reading, The Motley Fool

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LONDON — Two scientists in white lab coats stare into a microscope. The picture on the front of AstraZeneca‘s website sums up the company’s new strategy perfectly.

“We see no case for diversification” was the unequivocal message from CEO Pascal Soriot last week, in sharp contrast to rival GlaxoSmithKline. Instead, Astra plans to remain focused on being a scientific R&D-led developer and marketer of prescription drugs.

Patent cliff
That leads to an obvious question: how will Astra get over its patent cliff? Revenues dropped by 20% last year. Soriot’s remedy is:

  • Better marketing of existing patented drugs, such as heart-attack therapy Brilinta, getting more doctors to prescribe it. The company is also targeting sales growth in emerging markets.
  • Streamlined and focused research. Astra will concentrate on just three therapeutic areas, management has been re-vamped and the R&D function is relocating around three bioscience clusters.
  • Slashing administrative costs. More than 5,000 jobs will go by 2016, with a $2.3 billion restructuring charge expected to yield annual savings of $800 million.

Soriot aims to beat the current market consensus forecast of $21.5 billion of sales in 2018, equaling 2011’s outturn. That’s hardly a stretch target.

Is the dividend safe?
Many investors hold Astra for its 6% yield. The good news is that the board has adopted a policy of maintaining or growing the dividend while new drugs come on-market. It’s targeting a cover of two times core earnings over the investment cycle, giving it a lot of wriggle room.

The plan is to spend half of free cash flow on R&D and most of the rest on dividends, with any cash remaining used for bolt-on acquisitions or share repurchases. That’s a great plan if there’s enough cash, but it depends on the boffins getting new drugs authorized.

Astra’s strategy is significantly higher risk than GSK‘s, whose over-the-counter products like Lucozade don’t need years of R&D and testing. It will take a couple of years to find out if it’s working, and if it isn’t then the progressive dividend policy will be out the window.

Hedging bets
But if Soriot pulls off the new strategy, investors will be rewarded with a re-rating of the shares. In contrast, GSK‘s diversification makes it a safer but more boring play.

Which to choose? It could make sense to hedge your bets with some money in each. One very successful investor who’s done just that is Invesco Perpetual‘s star fund manager Neil Woodford. Nearly a quarter of his 22 billion pound funds are invested in just three companies in the pharmaceutical sector: Astra, GSK and one other.

Woodford has an unrivaled record for stock-picking. His high income fund is “the best performing of any fund investing in the UK since it launched” according to Hargreaves Lansdown. It has grown at 12.6% a year since 1988.

You can learn more about how Woodford selects stocks, and the identity of his third pharmaceutical investment, in a newly updated report from the Motley Fool: “Eight Shares Held By Britain’s Super-Investor.” You can download it …read more
Source: FULL ARTICLE at DailyFinance

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Should You Buy AstraZeneca Today?

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By Royston Wild, The Motley Fool

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LONDON — I believe that pharmaceuticals play AstraZeneca  is at risk of a fresh share price collapse, as current levels do not reflect the mountain the company has to ascend to turn its revenues around. Societe Generale last week stuck a 2,650 pence price tag on the company’s stock, an 18% discount to the two-and-a-half-year high above 3,235 pence punched recently.

In my opinion, the company remains highly susceptible to renewed negative re-ratings, with earnings in coming years ready to continue tumbling before its restructuring program kicks into gear and new product development ratchets up.

Earnings slump as patents expire
AstraZeneca announced in January that group turnover slumped 17% to almost $28 billion in 2012, in turn driving pre-tax profit a chunky 38% lower to $7.7 billion. The result was driven by the loss of exclusivity across a number of its key brands — indeed, the firm noted that patent issues related to its Seroquel IR, Nexium, Atacand and Merrem medicines accounted for 85% of the revenue dip.

The company has faced severe criticism in recent times as it has failed to adequately boost its new product pipeline to compensate for such significant patent expiries. New chief executive Pascal Soriot has been entrusted with overseeing a massive restructuring of the group, which includes the establishment of new research bases across Europe and North America, designed to underpin long-term innovation.

Further revenues pain expected
In the meantime, however, City forecasters expect earnings per share to collapse further in 2013 following the heavy 12% decline recorded last year. A drop of 19%, to 345 pence, is expected before falling another 3% in 2014 to 334 pence.

The pharmaceuticals giant does at least offer projected dividend yields well ahead of the 3.5% FTSE 100 average, however, with yields of 5.8% and 5.9% expected this year and next, respectively. And these payouts are pretty well protected, with coverage of 1.9 times for these years just below the widely regarded safety marker of 2.

AstraZeneca carries a P/E ratio of 9.4 and 9.7 for 2013 and 2014 respectively, providing a massive discount to the forward multiple of 31.3 for the broader pharmaceuticals and biotechnology sector.

Although this could a solid base from which to accrue juicy gains, the prospect of rising earnings pressure could drive share prices lower in the medium term. I would also like to see further progress from its restructuring plan before selecting AstraZeneca for my own stocks portfolio.

The prescription for plump returns
Although AstraZeneca presents too much risk in my opinion, check out this newly updated special report that highlights a host of other FTSE winners identified by ace fund manager Neil Woodford.

Woodford — head of UK Equities at Invesco Perpetual — has more than 30 years’ experience in the industry, and has identified two other fantastic pharmaceutical firms in the report set to deliver spectacular investor returns.

The report, compiled by The Motley Fool’s crack team of analysts, is totally free and comes with no further obligation. Click here now …read more
Source: FULL ARTICLE at DailyFinance

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Should You Buy Royal Dutch Shell Today?

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By Royston Wild, The Motley Fool

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LONDON — I believe that oil giant Royal Dutch Shell  is an excellent choice for investors looking to energize the income from their share portfolio.

The company operates a progressive dividend policy that should continue to yield payouts well above the mean offered by the U.K.’s 100 largest companies. Meanwhile, a meaty capital expenditure program should turbocharge earnings over the long term.

Juicy dividends primed to swell
Royal Dutch Shell is particularly appealing to income investors owing to projected dividend increases in coming years. A payout of 105 pence per share last year is set to leap 11% in 2013, to 116 pence, according to broker forecasts. The payout is then expected to rise to 119 pence per share in 2014. And projected dividend yields of 5.2% and 5.3% for this year and next are way ahead of the 3.5% FTSE 100 average.

Investors can also take comfort in solid dividend cover of 2.3 times for the next two years, above the widely held security benchmark of 2 times. As well, the oil play continues to return cash to its shareholders through its ongoing buyback program.

Heavy capex spend to propel future growth
Royal Dutch Shell announced in January that earnings on a “current cost of supplies” basis fell to $27 billion in 2012 from $28.6 billion last year, although fourth-quarter earnings rose to $7.3 billion from $6.5 billion.

I believe that rising exploration and production expenditure should deliver excellent growth further out. The firm — which currently has 30 new projects under construction across the globe — has allocated capex spend of between $120 billion and $130 billion up until 2015.

As well, a significant reduction in gearing to the lower end of the company’s target, to 9.2% as of the end of 2012 versus 13.1% at the same point in 2011, could herald further capex investment.

Royal Dutch Shell continues to throw off lots of cash, enabling it to boost expansion and maintain shareholder payouts. Cash flow from operations in 2012 leapt to $46.1 billion from $42.7 billion, and the company estimates that cash flow could be around 50% higher in the 2012-2015 period than during 2008-2011.

City brokers anticipate earnings per share falling 5% in 2013, to 272 pence, before edging back into positive territory next year to post 2% growth to 276 pence.

The oil behemoth currently trades on P/E ratios of 8.2 and 8 for 2013 and 2014 respectively, which I consider extremely cheap given the firm’s stellar growth prospects.

Zone in on other sterling stocks
Whether or not you already hold shares in Royal Dutch Shell, check out this newly updated special report which 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, …read more
Source: FULL ARTICLE at DailyFinance

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Why I'm Bullish on Defence

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By Tony Reading, The Motley Fool

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LONDON — So-called “sequestration” — automatic spending cuts, half of which are allocated to defense — came into effect in the U.S. this month after Congress failed to agree a budget.

Bad, but not that bad
It’s an added threat on top of planned military spending cuts. But a report from rating agency Fitch last week suggested that sequestration won’t have such a dramatic impact on European defense companies as many fear. It thinks:

  • Exposure to U.S. defense spending is limited;
  • Defense procurement will be protected;
  • Defense companies are good at restructuring to maintain cash margins.

US Department of Defense (DoD) contracts typically have lead times of around three years, so procurement spending will be little affected in 2013. The DoD is saving money by cutting operational expenditure such as training.

BAE most exposed
With 30% of its revenues coming from the DoD, BAE  is the most exposed. But Fitch estimates its 2013 revenues will suffer by 2% or less. The company has a 17% interest in the F-35 Joint Strike Fighter project, which has largely evaded budget cuts.

Like most of the sector, BAE is pursuing emerging market sales and reducing its dependence on defense. But its entrenched position in the U.K. and U.S. defense markets underpin its secure cash generation.

On a price-to-earnings (P/E) ratio of 9 and with a prospective yield of 5.3%, the twice-covered dividend makes it a great income stock.

More expensive, better growth
If only Rolls Royce  were so cheap! The world’s second-largest jet engine maker is on a prospective P/E of 17.6. Revenues grew 9% last year compared to a 6% contraction at BAE. Civil aviation accounts for over half of sales, with defense a fifth.

Meggitt  is the only other U.K. aerospace and defense company to make the FTSE 100. The aircraft brake manufacturer saw a 6% rise in revenues last year, and confidently increased its dividend by 12%. On a projected P/E of 13, it’s yielding 2.6%.

Overweight
One fan of the aerospace and defense sector is Invesco Perpetual‘s star fund manager Neil Woodford. He has 8% of his £22 billion funds invested in BAE and Rolls Royce. That’s a big bet on a sector that represents less than 2% of the FTSE‘s total capitalization.

Woodford’s stock-picking track-record is unmatched. His high income fund has grown at an annual compound growth rate of 12.6% since its launch in 1988, turning each £1,000 invested into £19,365. According to Hargreaves Lansdown, it’s “the best performing of any fund investing in the U.K. since it launched”.

You can learn more about how Woodford selects stocks in a brand-new report from the Motley Fool: “Eight Shares Held by Britain’s Super-Investor“ — now updated for 2013. It’s full of insights into his investment style. You can download it by clicking here — it’s free.

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The article Why I’m Bullish on Defence originally appeared on Fool.com.

Fool contributor Tony Reading owns shares in BAE and Meggitt but no other shares mentioned in this …read more
Source: FULL ARTICLE at DailyFinance

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Should You Buy Unilever?

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By Royston Wild, The Motley Fool

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LONDON — I believe consumer goods giant Unilever should continue to head higher over the medium term. I am convinced that strength across its stable of famous brands, accelerating business in developing markets, and ongoing work to improve efficiency across the group provide the bedrock for stellar earnings growth on an extended time horizon.

Excellent groupwide performance recorded in 2012
Unilever reported a 10.5% increase in group sales in 2012 to 51.3 billion euros, with underlying sales growth of 6.9% reported during the period. This powered net profit 7% higher to 4.9 billion euros.

The company reported solid growth across all divisions, with double-digit growth seen in the personal-care and home-care arms, and sales increasing across each major geographical region. In particular, the firm continues to gallop away in developing regions. About 55% of total turnover now originates from these markets, and underlying sales growth from these areas rose 11.4% in 2012.

Unilever boasts an enviable portfolio of household brands that are known across the globe, from Dove to Hellmann’s and Flora to Domestos. Last year the company added its Magnum and Sunsilk to its collection of 1 billion euro brands, which now stands 14 strong. This gives the company fantastic pricing power, which, combined with ambitious cost-cutting initiatives and a better product mix, should help the firm continue to increase margins. Unilever grew core operating margins by 30 basis points last year to 13.8%, growth which some analysts believe the firm will beat in 2013 and potentially thereafter.

Steady earnings growth expected
City brokers expect earnings per share to edge 4% higher in 2013 to 143 pence before making a 9% ascent to 156 pence during the following year.

And the consumer product specialist also offers a juicy dividend, albeit below the 3.5% average for the FTSE 100. Respective yields of 3.1% and 3.4% are projected for this year and next, although coverage of 1.7 times for 2013 and 2014 is below the traditional safety watermark of two.

Unilever currently trades on P/E ratings of 19.2 and 17.5, respectively, for 2013 and 2014 — far ahead of a reading of 12.2 for the broader food-producers and processors sector. But I believe the firm remains on course to maintain steady earnings growth and dividend increases, with its position in defensive consumer-end markets helping to protect the bottom line.

The canny guide for clever investors
If you already hold shares in Unilever, check out this newly updated special report, which highlights a host of other FTSE winners identified by ace fund manager Neil Woodfod. 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.

…read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Should You Buy SSE?

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By Royston Wild, The Motley Fool

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LONDON — I think SSE  is a great bet for stock pickers looking to boost their investment income.

In a bid to lure custom away from its competitors, the firm spelled out its new five-point Customer Service Guarantee last month, which will see it refund £20 to clients unhappy with the service provided. 

SSE has a solid history of providing industry-leading customer experience, and I believe the electricity supplier should continue to report solid earnings growth as demand for power rises.

An electrifying dividend pick
SSE‘s role as a major utilities operator makes it a perfect pick for income investors, as one would usually expect. A dividend of 84.4 pence has been penciled in by analysts for the year ending March 2013, up from 80.1 pence last year. And the payment is expected to rise to 88 pence per share in 2014 and 92 pence per share in 2015.

The firm’s generous dividend policy is expected to keep the yield well north of the 3.5% FTSE 100 average, with an income of 5.8% for this year projected to rise to 6% and 6.3% during 2014 and 2015 respectively.

SSE does not offer the sturdiest of dividend cover, with coverage of around 1.3 times predicted until the end of 2015. However, coverage some way off the traditional watermark of 2 times is not unusual for utilities, where defensive qualities help to ensure steady earnings growth and thus copper-bottomed shareholder payouts.

Earnings growth expected to ascend
City brokers expect earnings per share to edge 1% higher to 114 pence in 2013, before accelerating 3% next year to 117 pence and 8% in 2015 to 126 pence.

The electricity provider currently changes hands on a P/E ratio of 12.9 for 2013, which is expected to slide to 12.6 and 11.7 this year and next.

In my opinion, these ratings represent great value for money given SSE‘s steady earnings growth and record of building dividends. As well, the share seems better value than sector cousin National Grid, whose earnings multiples for 2013 and 2014 are projected at of 13.9 and 13.6 and whose dividend yield comes in below that of SSE.

Zone in on other sterling stocks
Whether or not you already hold shares in SSE, check out this newly updated special reportthat 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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The article Should You Buy SSE? originally appeared on Fool.com.

Fool contributor Royston Wild has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Should You Buy Anglo American?

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By Royston Wild, The Motley Fool

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LONDON — I reckon investors should steer clear of multinational mining group Anglo American  , as its revenues look set to remain under heavy pressure for the foreseeable future.

Lasting macro-economic jitters continue to heap pressure on commodity prices, in turn striking the top line for companies across the entire mining sector. For Anglo American specifically, a high exposure to the depressed iron ore market, alongside a weighty presence in the turbulent mining region of South Africa, is likely to weigh heavily for some time to come.

Worrying times for mining behemoth
Fundamentals in the iron ore market — iron ore represents around 45% of Anglo American’s total earnings — continue to flag amid flailing economic activity in Europe and a patchy cyclical recovery in China. And the fundamentals look likely to worsen, as a stream of new capacity in 2014 and 2015 pushes the market into heavy surpluses over the medium to long term.

Prices for iron ore continue to topple, and Rio Tinto‘s chief economist, Vivek Tulpule, commented just last week that he expects prices to decline to around $100 per tonne by September 2014 from $150 tonne presently.

As well, Anglo American is also likely to face challenges from worsening mining conditions in the resources hotbed of South Africa. The company has substantial exposure to the country, with a host of assets straddling the diamond, platinum, iron ore, manganese and thermal-coal industries.

Worker discontent across the entire South African mining industry is still bubbling after a turbulent 2012, and which actually kicked off at Anglo American Platinum’s Marikana mine in Rustenburg last August over a pay dispute.

Miners at the group’s Kleinkopje coal mine staged a sudden wildcat strike only this week, and which followed fresh violence at the Rustenburg, Union and Amandelbult platinum facilities in February.

Anglo American announced in January plans to shutter four mine shafts at Rustenburg, which would cut platinum output by 400,000 ounces per annum as the firm restructures its South African operations. But the prospect of additional rounds of strike action in the meantime, as well as spreading restlessness at its other installations, looms large.

Cheap valuation reflects worrying outlook
City analysts expect earnings per share to creep 2% higher in 2013 to 155 pence, before picking up speed in 2014 to rise 19% to 185 pence.

Anglo American currently trades on a P/E ratio of 12 for the current year and 10.1 for 2014, lower than the average of 15.2 attached to the broader mining sector. In my opinion, the company’s cheap rating is justified, as I believe further troubles could be ahead for the diversified mining group.

The canny guide for clever investors
Although Anglo American presents too much risk at current prices in my opinion, this newly updated special report featuring ace fund manager Neil Woodford highlights a host of other red-hot FTSE winners offering stunning value for money.

Woodford — head of U.K. Equities at Invesco Perpetual — has more than 30 years’ experience in the industry, …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Should You Buy Intertek Group?

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By Royston Wild, The Motley Fool

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LONDON — Support services play Intertek  has continued to print spectacular earnings growth in recent years, as its diverse range of end markets and market-leading expertise has helped to build enviable resilience.

Although I believe Intertek has what it takes to remain on a relentless growth path, I believe a steadily rising share price means much of this projected expansion is already factored in at current levels, leaving little upside potential.

2012 marks another year of stellar growth
Intertek’s full-year results released last week showed revenues leap an impressive 17% in 2012 to £2.1 billion, which in turn pushed pre-tax profits 19% higher to £308 million.

The firm — whose network of 1,000 laboratories straddles more than 100 countries across the globe — tests, inspects and certifies a wide range of products, including aeroplane parts, training shoes and children’s toys.

This broad spectrum, across both traditional and emerging geographies, has helped the firm shrug off weakness in individual markets. The group’s services also span a multitude of exciting industries with considerable structural growth prospects that I believe will underpin growth over the longer term.

Great growth prospects come at a price
Earnings per share growth of 13%, to 151p, is expected this year, according to City analysts. Growth is then projected to tick up slightly to 14% in 2014, to 172p per share.

Intertek has bucked the weakness in the wider economy to deliver excellent, double-digit earnings growth for a number of years now. And although I am convinced the company should continue to deliver yet more heady growth, at present price levels this expansion looks to be factored into the price.

The testing specialist currently trades on a forward P/E ratio of 22.8, and this is forecast to remain at an elevated 20.1 next year. And Intertek’s high premium is borne out through its price/earnings to growth (PEG) multiple, which is estimated to remain well above the value-for-money watermark of 1 over the medium term — readings of 1.7 and 1.5 are projected for 2013 and 2014 respectively.

And in spite of the firm’s excellent dividend growth — last year’s 41p payout per share was up from 33.7p in 2011, and is predicted to rise to 47.7p and 53.8p per share this year and next — Intertek still only offers a relatively low yield. Readings of 1.4% are expected in 2013 and 1.6% in 2014, well below the 3.5% FTSE 100 average.

Zone in on other sterling stocks
So although Intertek does not offer decent value at current levels, this special report highlights a host of other red-hot-yet-reasonably priced FTSE winners identified by ace fund manager Neil Woodward.

Woodford — head of UK 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 …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Should You Buy Imperial Tobacco Group?

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By Royston Wild, The Motley Fool

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LONDON — I believe Imperial Tobacco  is an excellent pick for the savvy income investor, as the company carries an enviable track record of hiking dividends.

Imperial Tobacco has experienced weakness in crucial markets in recent times, but I reckon the strength of its key brands and recently announced cost-cutting measures should help safeguard earnings.

Strategic cost-cutting to defend the bottom line
Imperial Tobacco — whose flagship brands include Gauloises Blondes, Davidoff, West, and John Player Special — announced earlier this month plans to become much leaner and efficient.

The company aims to generate 300 million pounds of cost savings per year until Sept. 2018, starting in October. Also, the new strategy will see it “shutter” 150 local brands that make up around 60% of volumes, yet are dropping at an alarming rate of 6% per year.

January’s interims showed net revenues crawl just 2% higher in the third quarter, while stick volumes dropped 1% as conditions in key regions such as Europe and Russia continued to deteriorate.

But Imperial Tobacco‘s ambitious plans to boost efficiency, coupled with ongoing strength among its bellwether products — net revenue and volumes across its key brands rose 12% and 10%, respectively, in the first quarter — should continue to deliver dependable earnings growth over the medium term.

Earnings growth to maintain steady momentum
City analysts forecast earnings per share could creep 5% higher to 212 pence in the year ending Sept. 2013, before rising a further 8% to 228 pence in the following 12-month period.

Imperial Tobacco currently trades on a P/E rating of 11.4 for the current year, which is projected to drop to 10.6 in 2014. These ratings compare favorably with a forward multiple of 13.5 for the broader tobacco sector.

Gear up for solid dividend growth
Imperial Tobacco operates a very solid, progressive dividend policy that outstrips that of its rivals. A dividend yield of 4.8% is forecast for 2013, which is expected to leap to 5.3% next year. These yields compare with rival British American Tobacco’s 4.2% and 4.6% yields forecast for the next two years.

Imperial Tobacco upped its dividend per share 11% last year to 105.6 pence, and further chunky payout increases are expected this year and next, according to broker estimates, to 115.7 pence and 127.8 pence, respectively.

Shareholder payouts do not enjoy supreme coverage, though, with predicted dividends covered 1.8 times this year and next. But Imperial Tobacco‘s position in the ultra-defensive tobacco industry should dispel fears over future dividend cuts, in my opinion.

Smoke out other sterling stocks
If you already hold shares in Imperial Tobacco, I’d now urge you to check out this special report, which highlights 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 has identified two other fantastic cigarette manufacturers in the report set to deliver spectacular investor returns. The report, compiled by The Motley Fool’s crack team of …read more
Source: FULL ARTICLE at DailyFinance