In today’s article I look at Hargreaves Lansdown (LSE: HL), Fresnillo (LSE: FRES) and Diageo (LSE: DGE) — three high-quality stocks that are in the news today. Are any of these firms a buy at today’s prices?
Hargreaves Lansdown
Shares in investment supermarket Hargreaves Lansdown rose by up to 7% this morning, after the firm reported a stunning set of quarterly results.
New business inflows rose by 47% to £1.43bn, while total client numbers rose by 24,000 (3.3%) to 760,000 in just three months. Thanks to a volatile quarter, trading levels rose sharply and the number of customer share deals rose by 14% to 691,000.
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Each of these extra deals generates an extra commission payment for Hargreaves, so I wasn’t surprised to see that net revenue for the quarter rose by 11% to £78.5m.
Hargreaves’ shares have risen by 13% over the last month, suggesting some investors were expecting good news today. However, the share price remains below last year’s all-time high of more than 1,500p.
Although today’s share price puts the stock on a 2016 forecast P/E of 32, falling to 28 in 2017, it’s worth remembering that Hargreaves has a 50% operating margin and generates a lot of free cash flow.
The firm’s dividend has risen by an average of 11% per year over the last five years and has always been covered by free cash flow. This suggests to me that the prospective yield of 2.8% could be appealing, given the likelihood of strong future growth.
I believe Hargreaves’ shares could be worth a closer look for long-term investors.
Fresnillo
Shares in silver and gold miner Fresnillo edged higher this morning. The gains came after the firm said that silver production has risen by 6.6% to 34.8 million ounces so far this year, while gold production is up 29.2% to 546,000oz.
Although Fresnillo shares have been hit hard by the bear market in gold and silver, the firm’s shares are currently just 2% lower than at the start of the year and could be a good long-term buy, in my view.
Fresnillo reported an operating margin of 17% last year and earnings per share are expected to be flat this year. However, if — or when — gold and silver start to recover, this year’s production increases should enable Fresnillo to deliver rapid profit growth and increased dividend payments.
Diageo
Spirits giant Diageo is selling its US wine business for £320m, according to a statement released this morning. Although this seems like small beer alongside the £68bn takeover of SABMiller, I think it’s good news.
So far this year, Diageo has generated £1bn from the sale of non-core assets, most of which will be used to reduce the group’s debt levels. In my view this is a smart move, especially considering the risk of lower growth levels in emerging markets.
Diageo shares trade on a forecast P/E of 20 and offer a prospective yield of 3.2%. Given the firm’s 20% operating margin and strong ability to generate cash, I don’t think this is unreasonable. The shares certainly remain a hold in my portfolio.
