Here are a few things you should know before deciding whether to invest in Royal Dutch Shell (LSE: RDSB), Balfour Beatty (LSE: BBY), Monitise (LSE: MONI) and Blinkx (LSE: BLNX) right now.
Under The Spotlight Last Week: Balfour Beatty & Monitise
Balfour Beatty roared back last week as investors were pleased to find out the builder was taking decisive action to strengthen its balance sheet.
By implementing a zero dividend policy, Balfour Beatty aims to preserve its cash flow profile, but also becomes a less appealing income stock. That’s not a big issue, really — there are other priorities right now.
The company has been in restructuring mode for some time, and its valuation will probably rise a lot from here only if speculations of a takeover emerge once again. Since its stock hit a multi-year low in mid-October, it has risen more than 60%, which is a terrific performance but also places Balfour Beatty’s valuation on very rich multiples for earnings and cash flows.
Lots of uncertainty still surrounds the builder’s outlook — even though its chief executive, Leo Quinn, is serious about getting the business back on track.
Elsewhere, Monitise also drew attention last week as its founder and co-chief executive Alastair Lukies announced he would step down. Its stock was hammered after it said the offers it received from third parties did not fully value the business.
Well, I’d be very cautious with Monitise: a slew of profit warnings and a business model that doesn’t look convincing put this mobile-banking software maker between a rock and a hard place.
Does its current valuation — the stock is down about 50% year to date — point to a once-in-a-lifetime opportunity, however?
As with many other similar investments, you should ask yourself what is the real competitive advantage of its core business — and none springs to mind. If you are willing to bet on Monitise, though, consider it as a highly speculative investment. As such, I would invest only a tiny portion of my total available capital.
So, Shell Or Blinkx?
At around 30p a share, Blinkx in an opportunistic trade that would make much more sense than Monitise.
Based on the value of its assets, you may well decide to add Blinkx to your diversified portfolio, but then you must also consider that the profit and loss statement shows that revenues and profitability are under pressure. Moreover, there’s no dividend attached to the stock.
In short, if growth sputters, you may be in trouble.
Finally, Shell. The company is a solid investment, although if I were to invest in the shares of any major oil producer I’d consider BP, whose asset base is more attractive, in my view.
Shell said on Thursday that it planned to cut more job in its North Sea operations, and that came unexpected, but was important. By cutting costs, Shell preserves a rich payout — its forward yield is above 6% — at a time when targeted divestments are difficult to execute.
This is not to say that Shell strictly needs disposals, however — its balance sheet is solid. Capital expenditures are down, so Shell may be able to achieve its ambitious targets for cash flows even in a low oil-price environment.
As you may know, I believe Brent crude could rise to $80 a barrel by the end of the year — based on that and Shell’s fundamentals, this would be an obvious investment right now.