Don’t buy AstraZeneca plc, Wolseley plc and Great Portland Estates plc until you read this!

Bilaal Mohamed puts AstraZeneca plc (LON: AZN), Wolseley plc (LON: WOS) and Great Portland Estates plc (LON: GPOR) under the microscope.

| 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’ll be taking a closer look at pharmaceutical giant AstraZeneca (LSE: AZN), plumbing and heating supplier Wolseley (LSE: WOS), and property development and investment company Great Portland Estates (LSE: GPOR). Should you be risking your money on these London-listed companies right now?

Short-term pain

Anglo-Swedish pharmaceuticals giant AstraZeneca has faced its fair share of problems in recent years, with a gradual decline in sales and earnings due to generic competition and patent expiries. Under the circumstances the company’s share price has held up pretty well, supported by a strong dividend maintained at 280¢ per share since 2011. Management has also been making moves to turn the business around with increased investment into Research & Development, as well as cost-cutting measures to improve the company’s bottom line.

However, it may take some time for the R&D to bear fruit, with further earnings pain expected in the near term. Indeed, analysts expect profits to shrink by 8% this year to £3.4bn, before levelling-off in 2017. This would leave Astra trading on 14 times forecast earnings for both this year and next. I believe the increased emphasis on R&D should help boost earnings in the long term, but until then patient investors should be content with the healthy dividends on offer, currently yielding over 5%.

Further growth ahead

Major plumbing and heating supplier Wolseley has been boosted by a number of bullish recommendations from leading brokers this month and it’s not difficult to see why. The FTSE 100 firm has demonstrated strong growth since the start of the decade despite revenues remaining flat. Underlying earnings have soared from 142.9p per share to 230.2p over the last five years, whilst investors have seen their shares double in value.

Growth is set to continue with market consensus pointing to a 6% rise in earnings this year, followed by an even better 11% improvement in FY2017. In my opinion, the shares are attractively priced given the earnings outlook, trading on 15 times forecast earnings for the current year, falling to 14 for the year to July 2017.

Sky-high valuation

London-focused property firm Great Portland Estates has also enjoyed superb growth in recent years, with pre-tax profits rising from £155m in 2012 to £555m for fiscal 2016. However, the company’s valuation has been sky-high and could be ready for a correction when the pace of growth finally slows. Indeed, consensus forecasts suggest that profits will rise by just 6% this year, in contrast to the double-digit growth reported for the last three years.

The FTSE 250 real estate investment trust currently trades on a premium rating of 52 times forecast earnings for this year, falling to 42 for fiscal 2018, far too high for a property firm that pays only a token dividend and is showing signs of slowing growth. I feel there are far better opportunities out there for investors looking for exposure to the real estate sector.

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.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. 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

Investing Articles

By investing £80 a week, I can target a £3k+ second income like this

By putting £80 each week into carefully chosen shares, our writer hopes to build a second income of over £3,000…

Read more »

Dividend Shares

Here’s a simple 4-stock dividend income portfolio with a 7.8% yield

With these four British dividend stocks, an investor could potentially generate income of around £780 a year from a £10,000…

Read more »

A young black man makes the symbol of a peace sign with two fingers
Investing Articles

2 FTSE shares that could get hit by Trump tariffs

Many FTSE shares rely on the US for business and the potential introduction of tariffs on foreign imports could hurt…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Finding shares to buy can be complicated. Here’s a lesson from the US election

Identifying shares to buy is difficult. But Stephen Wright thinks monitoring what directors buy might be an under-appreciated source of…

Read more »

Investing Articles

What makes a great passive income idea?

Christopher Ruane earns passive income by owning blue-chip shares like Legal & General. Here's the decision-making process that helps him…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Here’s how I’d try and use an ISA to become a multi-millionaire!

Could our writer build his ISA to a multi-million pound valuation? Potentially yes -- and here is how he'd go…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

2 UK shares I wish DIDN’T pay dividends

UK dividend shares can be a great source of passive income. But sometimes, the best thing for a company to…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How to invest £800? I’d use these 3 Warren Buffett principles!

Christopher Ruane shares three lessons he has learnt from investing guru Warren Buffett that he hopes can help him invest,…

Read more »