Royal Bank Of Scotland (LSE: RBS), Royal Mail (LSE: RMG), Supergroup (LSE: SGP), Taylor Wimpey (LSE: TW) and RPC Group (LSE: RPC) have drawn my attention in the wake of their recent performances on the stock market.
What’s next for their shares?
RBS’s Restructuring Continues
RBS is down 13% in 2015, but at 335p a share — where its stock currently trades — I would not be concerned about its performance if I were invested in it for the long term.
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RBS needs another year at least to be in the black, and confidence is not at its highest.
“Royal Bank of Scotland is set for an £8bn hit this year as restructuring and legal costs mount, analysts at Barclays predict,” The Telegraph reported yesterday, which suggests that its stock price may be aligned with a worst-case scenario, even though its dividends may start in about a year.
Still, there are better options in the marketplace, such as Royal Mail, so I’d likely give it a pass.
Royal Mail’s Competitiveness
The shares of Royal Mail change hands at 506p, for an implied market cap of £5.1bn, and net earnings multiples of 21x and 19x in 2016 and 2017, respectively.
Here’s the problem: Royal Mail’s express unit is losing competitiveness, while its growth rate isn’t particularly appealing. I really need to see growth to invest in stocks, but it’s very likely that Royal Mail’s revenues will plateau over the next 30 months.
In short, the 20% rally in its stock price this year may indicate more downside than upside, although Goldman Sachs raised its price target to 610p from 585p earlier this week.
Supergroup’s Growth Rate
Since the turn of the year, the stock Supergroup has surged 50% to 1,277p, as investors seem to have decided to bet on revenues growth rather than on margins erosion.
What’s next is anybody’s guess: Supergroup stock carries more risk than that of Royal Mail, but if you believe that its revenues will hit £600m in 2017, while its operating profit will remain in the region of 12.5%/13%, you may be prepared to pay forward earnings multiples above 20x.
If you are chasing growth, however, there are two stronger alternatives in my opinion.
Lots To Like At Taylor Wimpey & RPC Group
The stock of Taylor Wimpey remains one of the most attractive plays among homebuilders, based on its trading multiples and those of its peers.
It offers a yield north of 5%, which is covered by earnings and is backed by steady operating margins.
There’s been lots of talk about a bubble in the sector since 2014, but Taylor Wimpey and its rivals have shrugged off concerns, delivering an impressive performance so far this year.
I doubt that a major correction in the broader market will significantly hurt returns — in fact, Taylor Wimpey shares have proved to be particularly resilient over the last few weeks.
Elsewhere, RPC stock has risen 25% since the end of November, when I said that the company could deliver an outstanding growth rate.
Revenues and margins are on their way up, boosted by acquisitions; its operations are properly financed; and rising earnings and dividends appear to be the obvious outcome over the medium term.
For all this, you are paying 17.6x and 14.3x forward earnings in 2o16 and 2017, respectively — in fairness, these are trading multiples that point to value.
