Does weakness in Vodafone‘s (LSE: VOD) stock price offer an opportunity right now? I don’t think so.
However, Shire (LSE: SHP) remains a must-have stock in your diversified portfolio, I’d argue.
I am not sure, though, whether it’s the right time to invest in Royal Mail (LSE: RMG).
Vodafone: Why Not?
I don’t like Vodafone, and I would rather invest in BT if I decided to add exposure to the technology, media and telecommunications sector. But, at between 180p and 200p a share, I think you’d do well to invest a tiny part of your savings — say between 1% and 3% — in Vodafone shares.
One problem is Vodafone’s high level of indebtedness, and it’s possible that a low growth rate in revenue and margins will force Vodafone to consider a less generous dividend policy — its forward yield is above 5%.
There is time to get the business back on track and to decide whether to buy assets or to build by growing organically, but for a similar risk and in spite of a lower yield, I would rush to snap up Tesco‘s stock.
Why Tesco? It’s still a market leader, and I think it’s an enticing restructuring story — so larger capital gains should be on the cards, and its yield could end up being higher than that of Vodafone over time.
Shire: A Bright Future
The risk of investing in Shire isn’t much different from that of picking up tobacco shares these days, although in the last 15 years Shire has significantly underperformed both British American Tobacco and Imperial Tobacco.
Don’t get me wrong: of course, British American Tobacco and Imperial Tobacco are bigger, more mature companies. And Shire, with a forward yield at 0.43% versus a yield north of 4% for these two tobacco companies, doesn’t offer a particularly appealing income stream.
But British and Imperial do not come cheap, based on fundamentals, and have now limited options when it comes to pursuing inorganic growth on a global scale, while Shire can easily consolidate assets and grow as a more profitable entity for a very long time.
Similarly, Shire is better placed to deliver value to shareholders than beer producer SABMiller, which is struggling to grow its business — there are no public companies available that could be acquired! — and whose core markets are not immune to a business cycle caratherised by low growth rates.
Recent news about Shire’s pipeline of drugs were a mixed bag — but it didn’t move the needle.
Royal Mail: Just Boring?
Royal Mail is also a market leader in its industry, and although competition and regulators pose serious threats to its future competitiveness and profitability, its stock doesn’t strikes me as being incredibly overpriced, and could be your preferred option over other more expensive shares — such as those of consumer staples companies, for instance.
Royal Mail is not too different from a utility, really, and I’d probably choose National Grid if I were to go for an investment with a similar risk profile. With a forward yield above 4%, it will unlikely reward you with massive gains, but Royal Mail could be just a boring stock to hold for a long time.
It is not an investment for me, but it could well sit in your retirement portfolio, just like Vodafone and Shire, even at no discount to their current levels — say 1% of Vodafone, 5% of Shire and 0.5% of Royal Mail.
