With Tesco(LSE: TSCO) shares up 37% to 191p since their 7 January low, we must assume investors expect good news from full-year results on 13 April. It won't be about an earnings recovery yet, as there's another 49% drop in EPS expected for the year ended February. Presumably the optimism stems from an assumed bottoming-out of Tesco's problems that should hopefully set the scene for an earnings rebound next year.
The problem is, Tesco looks like it's running to stand still at present. And though the rate of customer desertion to Lidl and Aldi might appear to be slowing, the competition is still hotting up and there's surely more price deflation to come. Both of the cut-price upstarts are engaged in new store rollouts, each one set to compete with its local Tesco.
I see forecasts for Tesco as a bit optimistic right now. But even if the City is right, we'll still see the shares' P/E ratio dropping only as far as 16.7 by February 2018 (from a weighty 40 on this year's expectations). I see that as just too high right now for the level of risk still there -- and I don't expect anything on the 13th to change my view.
Chip designer ARM Holdings(LSE: ARM), by contrast, has rarely looked better. Though we've had a couple of years of strong earnings growth, the shares have been stagnating of late, bringing their valuation down to attractive territory. After a 12-month drop of 6.6% to 1,028p, with only an overall 3% rise in two years, we're looking at a P/E of 30 based on 2016 expectations, dropping to a bit over 26 on 2017 forecasts. And we'll have a Q1 update on 20 April, which should put the first flesh on the bones of the year.
At the end of 2015, ARM talked of a "robust opportunity pipeline" heading into 2016, saying it expects its chips to "continue to gain share in mobile and enterprise markets" where a higher royalty rate should help boost profits.
You might think P/E multiples close to 30 are high, but I reckon those are bargain levels for a company with ARM's growth prospects -- 4bn ARM-based chips shipped in the final quarter of 2015 alone. Forecasters are expecting continuing years of double-digit earnings growth.
Profit from the weed?
I'm disappointed to see people still killing themselves with tobacco in 2016, but it's working wonders for the profits of British American Tobacco(LSE: BATS), which should be bringing us Q1 figures on 26 April. At 4,098p, the shares are up 14% in the past 12 months, and 64% in five years (the FTSE 100 has managed a feeble 1.5%). Earnings growth has slowed slightly over the past couple of years, but the pundits are predicting rises of 9% this year and 8% next. And the progressive dividend policy, which has been delivering inflation-beating rises, should provide yields above 4%.
Although tobacco volumes have been declining for some time, revenues and profits have been rising as more of the new wealthy in the developing world want to be seen puffing more expensive brands. BATS saw an 8.5% volume growth in its Global Drive Brands last year. I see no end to that trend any time soon.
I'm only wondering whether the company will rebrand itself to remove the T-word from its name, after Imperial Tobacco became Imperial Brands in February. British American Lovely has a ring to it!
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended ARM 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.