Concern over a sharp decline in car demand has weighed on the share price of Lookers (LSE: LOOK) in recent weeks. Indeed, the motors mammoth came within a hairâs breadth of hitting three-and-a-half-year lows just last month.
And stock pickers are quite right to be concerned over auto sales as we move into 2017. The Society of Motor Manufacturers and Traders (SMMT) recently announced that British new car sales edged 1.4% higher in October, a 4.1% rise in fleet car demand masking falling demand from private consumers. Sales to individuals slumped 1.1% last month.
But recent SMMT data shows a definite downtrend in new registrations in recent months, and this is expected to accelerate in the months ahead as rising inflation and moderating business confidence crimp buyer appetite.
Optimists will point to Lookersâ latest trading statement last week for reasons to be cheerful however, the firm advising that âwe have not noticed any significant difference in terms of customer behaviourâ since Juneâs EU referendum.
And many bargain hunters will also be drawn in by the companyâs ultra-low valuations. For 2017 the business deals on a P/E ratio of 6.7 times, well inside the benchmark of 10 times or below indicative of high-risk stocks.
Meanwhile, a dividend yield of 3.8% should prick the ears of income chasers.
Still, in my opinion the prospect of sinking appetite for big-ticket items like cars from next year supersede these cheap âpaperâ valuations, and I reckon there’s room for the share price to fall still further.
Marketing marvel
Like Lookers, communications colossus Communisis (LSE: CMS) has also seen its share price sink in recent sessions. But unlike the car retailer, I reckon this represents a great time for bargain hunters to pile in.
For 2017 Communisis deals on a P/E rating of just 5.8 times, while a dividend yield of 6.6% makes the firm one of the hottest income bets out there.
Communisis saw revenues edge 0.2% higher during January-June, to ÂŁ174.9m, it advised in August, a result that propelled pre-tax profit 37% higher to ÂŁ4.4m.
And while many large- and small-caps alike wince at the prospect of Brexit on future earnings, Communisis says that it expects to benefit from a rise in outsourcing activity should the UK economy experience a downturn. On top of this, the companyâs bias towards statutory communications will leave it largely unaffected from any possible decline in marketing spend, it advised.
Allied to this, I’m convinced the firmâs rising international presence should protect it from worsening economic difficulties in the UK. And the firmâs strong relationship with blue chip customers should keep revenues sailing higher too — Communisis inked a blockbuster six-year contract with insurance giant LV= during the first half, for example, and also began working with Legal & General from April.