Today I am looking at the investment prospects of four FTSE chargers.
J Sainsbury
Supermarket giant Sainsbury’s (LSE: SBRY) was one of the strongest FTSE 100 performers during the month of September and gained 7.5% during the period. First glances can often be deceptive, however, and the retailer had yesterday’s 14% bounce to thank for its chunky advance. Indeed, shares have trended steadily lower for months now, as rising competition from both budget and premium outlets has pushed sales — and with it investor appetite — steadily lower.
And quite why the market became so giddy following yesterday’s trading update is beyond me, I’m afraid. Although Sainsbury’s expects pre-tax profits to be “moderately ahead” of forecasts of £548m, any result is likely to be well below profits of £681m last year and £798m the year before that. And the City expects profits to continue sliding into the year concluding March 2017 at least. Once current investor giddiness subsides, and the slew of negative industry data sets back in, I expect the stock to trend lower once more.
Diageo
Alcohol giant Diageo (LSE: DGE) also enjoyed a handy bump last month and its shares rose 2.3% during September. The business’s strong emerging market operations forced shares lower in the previous month as the implications of Chinese economic cooling came home to roost. Still, I believe that Diageo should enjoy solid long-term revenues growth thanks to this wide geographical exposure, giving it access to surging consumer spending power in developing regions.
Diageo advised late last month that “we expect to deliver mid-single digit organic top line growth on a sustained basis” from 2017, with hulking investment in marketing and innovation across blue-chip brands like Johnnie Walker whisky and Captain Morgan rum anticipated to pay off handsomely. The number crunchers share this bullish view, and expect the business to put recent earnings bother behind it with a 1% rise in the year to June 2016, resulting in an attractive P/E ratio of 13.6 times.
Domino’s Pizza Group
Like Diageo, I reckon that fast food specialist Domino’s Pizza (LSE: DOM) is also a great pick for growth-hungry investors. The stock advanced 2.6% in the month of September, and I fully expect this momentum to continue as the firm’s slice of the takeaway market gradually expands. Domino’s saw like-for-like sales rise by double-digits yet again in the January-June half, while it’s also enjoying improved performance on the continent.
The business has invested heavily in store openings and e-commerce to deliver future sales growth, and with British wallets becoming fuller I expect to see more and more Domino’s mopeds whizzing around the roads. The caterer is anticipated to report an 18% earnings improvement in 2015 alone, and although a P/E ratio of 28.9 times may at first appear expensive, I believe the firm’s compelling growth case fully merits this premium.
Tate & Lyle
Sugar play Tate & Lyle’s (LSE: TATE) spurt in late August continued its momentum well into last month, with the stock gaining an impressive 8.5% in total during September. The business shored up patchy investor sentiment in July with news that trading had been in line with expectations, which helped to halt the steady price decline of recent years.
But Tate & Lyle isn’t out of the woods just yet, in my opinion, as difficult market conditions could push prices lower yet again. The company has been forced into a massive restructuring drive thanks to enduring weakness at its sucralose division, and was forced to hive off its bulk operations in Europe. And with conditions in the rest of the bulk ingredients market remaining ultra-challenging, Tate & Lyle is expected to suffer an extra 8% earnings decline in the 12 months to March 2016, resulting in a P/E ratio of 17 times. I therefore believe the risk continues to outweigh the promise of rich rewards at these prices.