While the FTSE 100 continues its dreadful overall performance — after the slump since the Spring, it’s up a mere 8% over five years — some individual shares have been soaring. But is it time to cash in your profits, or is there further to go?
The housebuilding sector has been storming ahead of late, and Taylor Wimpey (LSE: TW) shares have six-bagged in five years to 178p. But over the past month or so, we’ve seen a bit of a fall back, so is it possible we’re looking at the end of that stunning climb and a return to a more sedate pace? Well, commenting on first-half results in July, chief executive Pete Redfern told us the firm is “confident of achieving the three year financial targets that we established in 2014“. Part of that is a planned cash return of £300m to be paid to shareholders in July 2016, in addition to the £250m handed out in 2015.
Fears of a renewed housing price crash? The company enjoyed a 9.2% rise in average selling price in the half, to £225,000, in what was described as “a resilient and growing housing market“. Overheating London house prices may well cool, but Taylor Wimpey is still in a nice position to carry on as a cash cow.
On a forecast P/E of only 12, dropping to 10.5 on 2016 expectations, and with dividends set to yield 5.2% and 6.1%, I certainly don’t think it’s time to sell.
Buy the market maker?
Although the FTSE index might have stagnated, the company behind it hasn’t. In fact, shares in London Stock Exchange (LSE: LSE) have more than trebled in five years, putting on 24% in the past 12 months. In its third-quarter update three weeks ago, the firm revealed an 8% year-to-date rise in total income from continuing operations, with all divisions delivering growth on whatever basis you care to examine.
But the thing that concerns me is that growth expectations might have run ahead of reality. With EPS forecast to grow 14% this year, but that growth expected to drop to 6% next, a forward P/E of over 22 looks a bit stretching to me — especially with dividend yields of only a little over 1% on the cards.
And then we come to the growth champion that is ARM Holdings (LSE: ARM), whose shares are today worth around 13 times their value at the beginning of 2009. That growth tends to go in spurts, and since the end of 2012 we’ve only seen a 35% rise. But in that time, the firm’s processor design sales have carried on growing, and there’s an EPS rise of a massive 66% currently forecast for the year to December 2015 followed by a more modest 14% next year.
High, but not too high
Sure, the shares are on a forward P/E of nearly 35, which is around two and a half times the FTSE average. But that’s getting on for the lowest valuation they’ve been on in the past five years — at the end of 2013 we saw a P/E of more than twice that, at 75, and that’s come down purely through rising EPS forecasts.
With no sign yet of any decline in the world’s love for ARM’s mobile processing expertise, I see the shares as a bargain right now.