Today I am looking at whether brave investors should make the most of recent price falls at three unfashionable FTSE giants.
Royal Dutch Shell
Oil leviathan Shell (LSE: RDSB) has once again fallen out of favour with the investment community thanks to another steady decline in the crude price. The Brent index has tumbled through both the $60 and $50 per barrel key support levels during the past month, heaping further pressure on the fossil fuel sector — indeed, Shell has seen its share price erode 10% during the past three months alone.
And I believe further pain could be in store as the US rig count heads higher following months of steady withdrawals — latest Baker Hughes data showed the number of units in operation advance for a third straight week, to 670. The City expects worsening oversupply in the market to drive Shell’s earnings 33% lower in 2015 alone, resulting in a P/E multiple of 14.3 times. Although hardly disastrous, I reckon a reading closer to the bargain benchmark of 10 times would be a fairer reflection of the firm’s chilling earnings outlook.
With the top line expected to keep on dragging the number crunchers expect Shell to keep the dividend locked around 188 US cents in both 2015 and 2016. But while these figures still yield an impressive 6.3%, I believe investors should take these numbers with a pinch of salt — the firm’s decision to slash a further 6,500 workers last week underlines the stress on its balance sheet.
Standard Chartered
With performance continuing to lag across its emerging markets, banking behemoth Standard Chartered (LSE: STAN) has seen its stock dive 13% during the past three months. And I believe further pain could be in store as the firm has a long and uncertain road in front of it — pre-tax profits skidded 44% lower during January-June, to $1.8bn, as loan impairments continued to climb.
StanChart has vowed to undertake a full review of the business, as one would expect under new chief executive Bill Winters, and has not ruled out a rights issue to bulk up its balance sheet. With the bank having failed to stem the weakness across its key territories and get a grip on costs, I believe that there is far too much uncertainty swirling around the firm at the present time. Indeed, Standard Chartered also faces massive fines from US regulators over previous misdeeds.
The City expects the business to record another 28% earnings slump in 2015, matching last year’s decline and leaving it on a not-very-attractive P/E multiple of 14.3 times. In light of its precarious capital strength the firm elected to slash the interim dividend by half, to 14.4 US cents per share, and vowed to cut the final payment by a similar percentage. Should this materialise, Standard Chartered carries a yield of just 2.8%, dragging some way behind the market average of 3.3%.
Prudential
Unlike its developing market colleague, however, I reckon Prudential (LSE: PRU) is a great bet for investors looking to snap up a bargain. The London firm has fallen 9% since the middle of May as fears over the critical Chinese marketplace have abounded. But The Pru’s presence stretches around the globe, giving it access to rising spending power across new and established territories alike.
Indeed, relatively-low product penetration in emerging regions — combined with Prudential’s growing exposure to these places through acquisitions and organic expansion — is expected to blast the top line higher in the coming years. And for 2015 and 2016 alone the City expects the business to record earnings expansion of 13% and 12% respectively, figures that produce exceptional P/E ratios of 13.8 times and 12.3 times.
These bubbly growth projections are expected to keep dividends chugging higher, too, even if yields are expected to lag those of Prudential’s big-cap peers in the medium term — last year’s reward of 36.93p per share is expected to advance to 39.7p this year and 43.8p in 2016, producing yields of 2.6% and 2.9% correspondingly.