5 Opportunities For The Week Ahead

Published in Investing on 3 August 2012

Next week brings interims from some exciting sectors.

Next week is again dominated by interim results from companies on the FTSE 100 (UKX) and other FTSE indices, and we'll get feedback from some important sectors.

Some of those are, in my opinion, undervalued (with a long-term view, of course), so here's a handful that I think warrant some investigation, and you might like to take a look at them before their figures are revealed.

Morgan Sindall

I've liked Morgan Sindall (LSE: MGNS), which reports its interims on Monday, for a while, and I think the construction firm with a speciality in regeneration is trading at a bargain price now.

It's still a tough market, but 2011 full-year results looked promising, and though current economic problems are holding back the business, especially with government spending being cut back, forecasts for Morgan Sindall are solid.

We have two effectively flat years expected, but at the current price of 668p, the shares are on a forward price-to-earnings ratio (P/E) of a mere 8.7 for this year, falling to 8.3 next year. And there are dividends forecast of 6.2% and 6.3% respectively, which should be almost twice covered.

I'm expecting Monday's report to tell us of an uncertain second half due to challenging economic conditions, and I wouldn't be surprised if the shares should fall back a little -- but watch out for what I think is a good bargain.

Greggs

Interims from Greggs (LSE: GRG) on Tuesday should signal a further progression in the high-street baker's dividend policy. Greggs has an enviable record of beating the FTSE 100 in terms of annual payouts for the past five years, and if forecasts are accurate, this year will be no exception.

May's interim update told us that overall sales were up 4.3%, though like-for-like trading was down 1.8%. But on the current price of 509p, forecasts still put dividend yields at 3.9% and 4.3% this year and next. They should be twice covered by earnings, and certainly do not look risky at this stage.

Premier Foods

Premier Foods (LSE: PFD) has ben struggling, with net debt of £1bn on its books at its last year end, and the shares have lost around 60% in the past few months to stand at 68p today.

The firm's recovery strategy is to concentrate on its core brands and dispose of non-core ones, and we saw news of that this week when it announced it had sold off its pickles division to Japan's Mizkan for £41m, saying goodbye to Sarson's, Hayward's, Dufrais and other brands. The firm will now focus on brands like Hovis and Oxo.

But that £41m won't make much of a dent in its debt, so plans to tackle that and progress with the turnaround plan are what we should be looking for -- even the current forward P/E of only 2.3 isn't necessarily cheap under such debt pressure.

Rio Tinto/Xstrata

This choice is miners in general, as we have Xstrata (LSE: XTA) reporting on Tuesday, and Rio Tinto (LSE: RIO) on Wednesday, and they're both victims of the slump in demand for metals and minerals, with fears that Chinese demand is set to fall further as its economic growth falters.

But with Rio on 3,000p and Xstrata on 868p, both miners' shares have looked like they might be perking up a bit of late. And forecasts do look attractive.

Analysts are expecting a fall in earnings this year, but a recovery back to current levels for 2013. There are also decent dividends expected for the next two year-ends -- 3.2% and 3.7% for Xstrata, and 3.6% and 3.8% for Rio Tinto.

Analysts' tips are also heavy on the "buy" side for both, with an almost exclusive "strong buy" rating for Rio Tinto. Analysts' tips are often not worth much, but in this case I'm with them -- I see great bargains across the sector.

Amec

We have several engineering firms reporting interims next week, with aerospace and defence engineers Meggitt (LSE: MGGT) on Tuesday and Cobham (LSE: COB) on Wednesday, and I'll be interested to hear how the sector as a whole is going -- it's another of those that's looking good value to me.

But I'm particularly interested in figures from oil and gas equipment engineer and consultant Amec (LSE: AMEC), due on Thursday. Amec shares have climbed about 20% in the past couple of months, to 1,127p, but that comes after an earlier climb to similar levels commenced in January but fell back.

Forecasts are very strong for the next two years, with double-digit earnings growth, and we should be looking at dividend yields of around 3.1% and 3.6% for this December and next. In fact, earnings growth forecasts put the shares on a PEG of 0.6 for 2013, which is a good growth indicator. There was net cash on the books at the last year-end, so debt isn't a problem, and we could well have a nice "picks and shovels" entry into the oil and gas business here.

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> Alan does not own any shares mentioned in this article.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

SmilingKiller 03 Aug 2012 , 5:02pm

Does anyone have the patience to search all of this writer's articles to see if he has ever declared a holding in any of the shares he has recommended? I haven't found any such declaration so far.

This is, in general, not the case with other writers on this site.

Reading his piece from yesterday: http://www.fool.co.uk/news/investing/2012/08/02/beginners-portfolio-time-to-buy-oil.aspx I noted that I own shares in 6 of the 8 companies mentioned including the one in "Alan does not own any shares mentioned in this article. The Motley Fool owns shares in Tesco".

If the writer believes in the companies which he recommends, why doesn't he buy shares in them, or at least some of them?

Is that such a hard or unreasonable question to answer?

TMFBoing 03 Aug 2012 , 9:05pm

If the writer believes in the companies which he recommends, why doesn't he buy shares in them, or at least some of them?

I'm not recommending any shares or suggesting you buy any based on my writing about them. I'm just providing some ideas for ones that you might be interested in investigating for yourself.

That's how it works here - I offer some ideas, and you do your own research and make your own investment decisions based on your own analysis.

Then if you are successful (which I hope you are), nobody deserves the credit but yourself - and if you are not, then it's nobody's fault but your own.

Foolish best,
Alan
TMFBoing

SmilingKiller 05 Aug 2012 , 10:16am

“I'm not recommending any shares…”

So clearly:

“I've liked Morgan Sindall (LSE: MGNS), which reports its interims on Monday, for a while, and I think the construction firm with a speciality in regeneration is trading at a bargain price now.”

was not a recommendation because the words “I recommend Morgan Sindall” were not used.

And the same would apply to:

“Analysts' tips are also heavy on the "buy" side for both, with an almost exclusive "strong buy" rating for Rio Tinto. Analysts' tips are often not worth much, but in this case I'm with them”

I stand corrected.

My point was that there is little evidence that the writer invests in shares at all personally, and I don’t understand why that is.

jackdaww 05 Aug 2012 , 10:35am

simple

he is a journalist/writer/wordmonger

nothing wrong with that.

sludgesifter 06 Aug 2012 , 2:59pm

@SmilingKiller: There are thousands of shares on the market, of which it is practical to own a few dozen at most. It's normal also to have a watch-list of further shares, any of which you would consider buying if: (1) you had accumulated enough cash; (2) one of your present holdings became too dear to justify its presence in your portfolio, so leaving a vacancy; (3) the watch-list share dipped enough, or its relative prospects improved enough, to spur you into action; or (4) it helped to rebalance a portfolio that had drifted into over-concentration in some sectors. (This list is not meant to be exhaustive.) It's reasonable for a writer to share his thoughts about such shares, and perhaps generate some useful feedback in return.
I would be more concerned about a writer tipping micro-cap shares that he owned. Perhaps he wants to offload them at a better price!

TMFBoing 09 Aug 2012 , 1:17pm

I stand corrected

Good - I'm glad you now understand.

Foolish best,
Alan
TMFBoing

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