Are J Sainsbury plc, HSBC Holdings plc and Restaurant Group plc contrarian corkers?
Today I'm discussing the investment prospects of three troubled Footsie titans.
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Grub house Restaurant Group(LSE: RTN) has proved to be a stock market shocker in 2016. The company has shed half its value since Big Ben rang in the New Year thanks to a series of murky trading updates. But bubbly interest from bargain hunters has seen it bounce from May's four-year troughs.
And on paper it's easy to see why. Despite a predicted 12% earnings drop for 2016, this leaves Restaurant Group dealing on a P/E rating of just 12.1 times. And a predicted 16.1p-per-share dividend yields a tempting 4.6%.
However, I believe the structural problems facing Restaurant Group significantly dent the prospects of a long-term recovery.
You'd think a robust economy in Britain should be boosting sales at the Frankie & Benny's owner. But Britons' growing preference for internet shopping is significantly harming takings, a result of Restaurant Group's heavy positioning in retail parks.
With the business also battling intensifying competition from other eateries, I reckon it's likely to keep on toiling.
Foodie falls
Likewise, I reckon grocery giant Sainsbury's(LSE: SBRY) is also in danger of protracted earnings woes as its rivals eat into its market share. The supermarket had previously hailed the positive impact of massive brand investment, a drive that helped revenues chug higher again from last summer.
But fresh troubles at the tills suggest the uptick of recent months may be a flash in the pan. Indeed, Sainsbury's endured a 0.4% sales slide during the three months to 24 April, according to Kantar Worldpanel.
By comparison, Aldi and Lidl saw revenues roar 12.5% and 15.4% higher during the period, and this trend is likely to continue as the chains rapidly expand. Furthermore, the traditional popularity of Sainsbury's with more affluent shoppers is also taking a whack from upmarket outlets Waitrose and Marks & Spencer.
Against this backcloth the City expects Sainsbury's to endure a 9% earnings slide in the period to March 2017. And with further bottom-line troubles on the cards, I believe savvy investors discard a decent P/E rating of 12.3 times and give the grocer short shrift.
Banking beauty
I also believe HSBC (LSE: HSBA) is in danger of suffering further revenue troubles as economic cooling in its core Asian marketplaces weighs.
The banking giant saw adjusted revenues dip 4% during January-March, to $13.9bn, driving adjusted pre-tax profit 18% lower to $5.4bn. And signs of further slowing in regional hotbed China threaten to keep HSBC's income under attack.
With the top line struggling, and HSBC also facing the prospect of escalating misconduct charges, investors could additionally be forced to swallow a hefty dividend cut in the near future. City brokers suggest a reward of 51 US cents per share in 2016, yielding a hefty 8%. But further stagnation in the bank's CET1 ratio in the months ahead could put paid to these estimates.
However, I believe 'The World's Local Bank" remains a decent share for those seeking splendid long-term returns.
HSBC's exceptional emerging-market exposure should deliver strong revenues growth as rising populations and increasing personal affluence levels drive banking services demand. And the firm's ongoing cost-cutting drive should make the firm a more efficient earnings generator for the years ahead.
Despite a predicted 9% earnings slide for 2016, I reckon an ultra-low P/E rating of 10.3 times makes HSBC an attractive bounceback candidate for patient stock pickers.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
