There’s reason to believe that Kier (LSE: KIE) could be a solid buy, but what exactly did we learn from its trading update today?
And how about Ocado (LSE: OCD) (up 10%) and Hunting (LSE: HTG) (down 8%), whose shares have enjoyed different fortunes today? Elsewhere — in case you haven’t noticed — Benchmark Holdings (LSE: BMK) has risen almost 60% in value in a tough market since 23 July.
Taking profit at 1,419p?
Kier is showing some signs of weakness today, with its stock down around 4.5% at the time of writing. I wouldn’t worry too much: its shares are up over 20% this year, so some investors are just locking in profits, in my view. Preliminary results for the year ended 30 June showed healthy growth rates for revenues, core earnings, earnings per shares and dividends. Return on capital employed is excellent — “in excess of 15%“, the group said. Its core margins are thin but its balance is strong, while its order book is reassuring. True, at 18x forward earnings, its shares are not incredibly cheap but could be added to a diversified portfolio.
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Growth at 352p
Its third-quarter results this week confirm that the notion that Ocado deserves a valuation of between 350p and 450p a share, in my view, and that is backed by rising sales and average orders per week. Its beta is much higher that that of Kier, and its shares are much more expensive, according to most metrics, so you’d be buying volatility for your portfolio, but then Ocado could shine in this growth-starved world. Its free cash flow profile is still tight, its balance sheet is relatively sound — so, Ocado is not exactly a traditional value play. However, capital gains could be huge should it hint at a symbolic dividend payment at some point over the next 24 months.
Impairment risk at 433p
I have mixed feelings, given that too much uncertainty still surrounds Hunting, whose stock price has fallen 17% so far this year in the wake of today’s performance. Weakness in its stock price presents a good opportunity to add it to your wish list, but then you should keep a close eye to its order book and operating costs line before buying into this restructuring story. Analysts at JP Morgan announced today to have cut their price target from 518p to 338p, which means that if they are right, Hunting could be currently overvalued by almost 30%. I am not that bearish, but my advice would be to wait, based on impairment risk.
A healthy look at 97p
Benchmark is a small biotech firm that has been on my wish list for a few weeks now. I reiterate the view that its success hinges on its products pipeline, which is hard to value but looks really promising. Strategy-wise, management is showing good progress, and at 97p a share you’d be snapping up a very expensive stock based on its cash flow profile and revenue multiples, but one that could surely reward your patience. It could be worth it, in my view.
