Do the shares of BG Group (LSE: BG), BT Group (LSE: BT-A) and ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) offer value right now? The answer is yes, but it comes with caveats.
Under Pressure
BG stock has lost more than 15% of value from the high it recorded in early September. Of course, BT stock is less cyclical than BG: it is down 7% from the three-month high it registered on 19 September and isn’t too far away from the lows for the year. Finally, ARM stock has been battered and is down 15% from the six-month high it recorded in early September.
BG’s Restructuring
BG’s restructuring is taking longer than expected, which is bad news for shareholders. The macroeconomic landscape isn’t providing a helping hand, either. A lack of leadership also weighs on the equity valuation of this British gas producer, but the shares are trading around the lows for the year and recent weakness may offer an opportunity to investors who believe that the market is oversold. BG needs divestment to become a leaner entity, and management should be quick to address the company’s corporate structure. This is certainly one of the riskiest bet in the market at this point in time, but BG could reward brave investors.
BT Needs Growth
BT lacks growth, but it has become a more efficient business over time — and that isn’t priced into its shares. If the high-end of consensus estimates is met, BT stock will rise by 70% by the end of 2015, the bulls argue. That may be a stretch, particularly if BT doesn’t show investors that it can grow at a faster pace. A six-month price target in the region of 43op is a base-case scenario for analysts. So, do the benefits of holding BT outweigh the risks?
In my view, BT’s equity valuation should benefit from Vodafone‘s woes, which are likely to persist for a very long time. I would hold BT stock as part of a diversified portfolio. A worse-case scenario entails a 35% drop in BT stock from its current level, according to bearish estimates from analysts.
No Disappointment with ARM?
ARM stock was one of the worst performers on Monday. A sales warning issued by chipmaker Microchip Technology from the US didn’t help the sector. The bears argue that ARM stock is expensive based on trading multiples, but at this price ARM stock remains attractive, in my opinion. The recent plunge in ARM stock may be based on the view that ARM management will have to lower the sales guidance, but I believe that management may surprise the market just as they did in previous quarters. A £10 value per share, for an implied 12% upside, is not overly optimistic.