10 Shares Selling At Discount Prices

Published in Investing on 30 November 2012

These shares have trailed the FTSE 100 in the last 12 months. Are they worth another look?

2012 has been a good year for stock-market investors. Despite all the economic negativity, the FTSE 100 (UKX) is up 9.8% in the last year. Not all of the UK's blue chip shares have kept up, however; some have been real losers in the last 12 months.

The contrarian in me says that these laggards could reward further research. A lower share price often brings with it a higher dividend yield. If sentiment improves, a buyer could make a capital gain and earn a solid income along the way.

These are the 10 largest companies that have trailed the FTSE 100 by 10% or more over the last year.

NamePrice (p)UnderperformanceP/E (forecast)Yield (forecast, %)Market capitalisation (£m)
Royal Dutch Shell2,148-,160
Rio Tinto2,941-,777
Glencore International335-20.410.22.623,772
Anglo American1,707-,575

Data from Stockopedia and Morningstar.

Four shares stood out in particular.

1) Shell

I do not know of a share in the FTSE 100 that deserves the title 'blue chip' more than Royal Dutch Shell (LSE: RDSB). £135bn market cap. 90,000 employees. Over 100 years of history. A dividend that has not been cut since World War II.

In 2011, that big dividend and big market capitalisation meant that Shell paid out more cash than any other FTSE 100 company. So, why has Shell fallen behind the rest of the market?

It appears that investors have become concerned at Shell's growth prospects. Analysts are forecasting a similar level of profitability for 2012 and 2013. Despite the lack of expected growth, the current forward P/E of 8.3 looks a little mean for a company of Shell's calibre.

The dividend is expected to keep on coming, meaning this titan's shares have not presented better value since the worst of the financial crisis.

2) BP

At the start of 2012, shares in BP (LSE: BP) (NYSE: BP.US) traded for around 500p. In the last six months, however, the shares have struggled to get past 450p. In the year, the highest price that shares have sold for is 504p. The lowest is 392p. For such a large blue-chip share, that's a lot of volatility.

BP is still being buffetted by aftershocks from the Gulf of Mexico disaster in 2010. Earlier this week, the shares fell back on news that one US regulator was suspending BP's permission to secure future government contracts.

Surprisingly, this only had a minor effect on BP's share price. To me, this suggests that many shareholders are believe BP represents long-term value at today's price.

With the company's long-term future in Russia now apparently secured, there is more certainty in BP's business than there has been for over two years.

To cap it, BP's dividend has also been rising fast. Analysts expect a 35.2% dividend hike for the full year, followed by another 10.9% rise in 2013.

3) Tesco

Tesco (LSE: TSCO) is a FTSE 100 record holder. No other company in the blue-chip index has a longer history of consecutive dividend increases. However, there are signs that this streak may be about to end.

Shares in Tesco fell hard in January. Management reported that the company had failed to sell enough discounted items during the key Christmas trading period. This news saw the shares lose 20% of their value in two weeks. Before this announcement, analysts expected Tesco to make earnings per share (EPS) of 39p for 2013. Today, that forecast has fallen to just 32.3p.

Worryingly, Tesco has been losing market share to its old rival Sainsburys. Tesco is a massive business. How quickly can it be turned around? 

At the half-year stage, Tesco reported a fall in EPS of 7.9%. The interim dividend was held at 4.63p per share. 

Analysts expect that the full-year profits will be 5.5% behind last year's figure. If the dividend is not increased with final results, Tesco will lose its hard-earned dividend-raising record.

4) Vodafone

Shares in Vodafone (LSE: VOD) are down 13.4% in the last three months. That fall has been exaggerated by the shares recently going ex-dividend. That alone accounts for 1.7% of the decline.

However, there are reasons to expect Vodafone shares could pick up in the near future. 1.5bn reasons to be precise. Before the year is up, Vodafone will be receiving a £2.4bn special dividend from its US joint-venture, Verizon Wireless. £1.5bn of this will be used buying back its own shares in the market.

Vodafone shares are currently trading at a low for the year. I expect that when this massive demand for shares hits the market, Vodafone shares will rise. In the meantime, there is a chunky yield to enjoy. Vodafone is expected to pay 9.9p of dividends this year. The share buyback will ensure Vodafone can pay a higher per share dividend at the same cost in the future.

Vodafone looks a great buy for income and capital growth.

Warren Buffett is a man who loves buying shares when other investors have been rushing to sell. His ability to repeatedly buy companies cheaply has made him one of the world's richest men. Recently, Mr Buffett has been buying shares in one UK-listed company. If you want to find out which share this super-investor has been buying then click here to get the free Motley Fool report "The One UK Share Warren Buffett Loves".

> David owns shares in Vodafone but no other companies mentioned. The Motley Fool owns shares in Tesco and has recommended shares in Vodafone.

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kiffberet 01 Dec 2012 , 6:01am

Nice article. Thought I'd get analysis for 10 shares, though.

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