Should You Buy Diageo plc, Cairn Energy PLC & RSA Insurance Group plc On Monday?

Royston Wild runs the rule over headline makers Diageo plc (LON: DGE), Cairn Energy PLC (LON: CNE) and RSA Insurance Group plc (LON: RSA).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at the investment prospects of three Monday headline makers.

A delicious stock selection

Drinks mammoth Diageo (LSE: DGE) marked the start of 2016 fresh restructuring news. The London business has finally bid farewell to its wine assets in Britain and the US, generating $552m in the process and allowing it to double-down on its core assets.

Although the impact of currency movements look set to weigh a little while longer, I believe the unrivalled brand power of Diageo’s drinks portfolio — combined with massive investment in marketing and product innovation, not to mention its rising presence in the lucrative ‘premium’ drinks segment — will deliver strong gains in the years ahead.

Indeed, the City expects Diageo to recover from chunky earnings losses in the past two years with a 1% recovery in the 12 months to June 2016. Sure, this may result in a slightly-elevated prospective P/E rating of 21.3 times, but I believe the company’s leading position in established and emerging regions alike still makes it a great buy at these prices.

Crude play cheers investors

Trader appetite for fossil fuel explorer Cairn Energy (LSE: CNE) enjoyed a bumper end to 2015, even though a declining crude price forced the business to swallow a 12% share price decline during the course of the year.

And Cairn Energy’s recent strong performance received further fuel during Monday business following positive drilling news in Senegal. The company advised that its offshore SNE-2 asset had encountered high-quality oil flowing at a rate of 8,000 barrels per day. Further appraisal work is expected to lead to upward revisions of the size of the resource base, Cairn Energy added.

Despite today’s news, however, I believe the business remains too risky at present as crude oil prices continue to tank. Indeed, Cairn Energy is expected to follow anticipated losses per share of 45 US cents per share in 2015 with losses of 17.4 cents in 2016, at least according to analyst forecasts.

And I believe the explorer is in severe danger of remaining in the red for much longer as the oil market’s supply/demand balance steadily worsens.

Streamlining still delivering the goods

Like Diageo, life insurance leviathan RSA Insurance (LSE: RSA) also made the headlines in start-of-year trade with fresh divestment news.

The financial colossus announced that it had finally shorn off its operations in Italy to ITAS Mutua following regulatory approval. RSA Insurance has also sold off assets in Russia, the UK and India in recent months, taking total agreed disposal proceeds to date to around £1.2bn.

The City expects RSA Insurance to flip from losses per share of 14.4p per share in 2014 to earnings of 32.7p in 2015, and a marginal increase to 1% is predicted in the current year to 33p. And a consequent P/E rating of 13.1 times signals terrific value in my opinion.

With ongoing streamlining allowing the business to double-down on its core assets in the UK, Ireland, Scandinavia and Canada, regions where product demand continues to move steadily higher, I expect RSA Insurance to deliver huge gains in the years ahead.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »

Investing Articles

Could I use a stock market crash to turn £20k into half a mil in just over a decade?

A stock market crash might sound terrifying to some but it can also present a once-in-a-lifetime opportunity to accumulate generational…

Read more »

Investing Articles

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »