Today I am looking at the investment prospects of three Monday headline makers.
A delicious stock selection
Drinks mammoth Diageo (LSE: DGE) marked the start of 2016 fresh restructuring news. The London business has finally bid farewell to its wine assets in Britain and the US, generating $552m in the process and allowing it to double-down on its core assets.
Although the impact of currency movements look set to weigh a little while longer, I believe the unrivalled brand power of Diageo’s drinks portfolio — combined with massive investment in marketing and product innovation, not to mention its rising presence in the lucrative ‘premium’ drinks segment — will deliver strong gains in the years ahead.
Indeed, the City expects Diageo to recover from chunky earnings losses in the past two years with a 1% recovery in the 12 months to June 2016. Sure, this may result in a slightly-elevated prospective P/E rating of 21.3 times, but I believe the company’s leading position in established and emerging regions alike still makes it a great buy at these prices.
Crude play cheers investors
Trader appetite for fossil fuel explorer Cairn Energy (LSE: CNE) enjoyed a bumper end to 2015, even though a declining crude price forced the business to swallow a 12% share price decline during the course of the year.
And Cairn Energy’s recent strong performance received further fuel during Monday business following positive drilling news in Senegal. The company advised that its offshore SNE-2 asset had encountered high-quality oil flowing at a rate of 8,000 barrels per day. Further appraisal work is expected to lead to upward revisions of the size of the resource base, Cairn Energy added.
Despite today’s news, however, I believe the business remains too risky at present as crude oil prices continue to tank. Indeed, Cairn Energy is expected to follow anticipated losses per share of 45 US cents per share in 2015 with losses of 17.4 cents in 2016, at least according to analyst forecasts.
And I believe the explorer is in severe danger of remaining in the red for much longer as the oil market’s supply/demand balance steadily worsens.
Streamlining still delivering the goods
Like Diageo, life insurance leviathan RSA Insurance (LSE: RSA) also made the headlines in start-of-year trade with fresh divestment news.
The financial colossus announced that it had finally shorn off its operations in Italy to ITAS Mutua following regulatory approval. RSA Insurance has also sold off assets in Russia, the UK and India in recent months, taking total agreed disposal proceeds to date to around £1.2bn.
The City expects RSA Insurance to flip from losses per share of 14.4p per share in 2014 to earnings of 32.7p in 2015, and a marginal increase to 1% is predicted in the current year to 33p. And a consequent P/E rating of 13.1 times signals terrific value in my opinion.
With ongoing streamlining allowing the business to double-down on its core assets in the UK, Ireland, Scandinavia and Canada, regions where product demand continues to move steadily higher, I expect RSA Insurance to deliver huge gains in the years ahead.