Every investment portfolio benefits from a spread of stalwart stocks that you can rely on to keep performance ticking over. Do these three fit the bill?
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Utility companies are regarded as the ultimate portfolio stalwarts, but as investors in British Gas owner Centrica(LSE: CNA) have discovered, no stock offers complete reliability. In fact, Centrica has been more volatile than many on the FTSE 100, and currently trades 37% lower than three years ago. It has has been hit by a variety of threats , including Ed Miliband's price freeze pledge, mild winter weather, growing domestic gas market competition, and plunging oil and gas prices.
Lately it has been volatile in a good way, rising more than 10% this year, driven by the oil price resurgence. To add to the excitement, it is in talks over a tie-up with the oil and gas production arm of French energy colossus Engie, would allow both companies to cut costs and boost economies of scale. If you think the oil price rise has further to go (we may know more after the Doha talks on Sunday), then today's valuation of 13.77 times earnings looks tempting. Either way, a yield of 5.08% helps preserve its stalwart status.
A Shadow Of Itself
Stalwarts ain't what they used to be. At least, Rolls-Royce (LSE: RR) isn't. After giving investors a smooth ride for years, lately things have been embarrassingly bumpy. The share price is down 40% over the past three years, although it has rallied 20% over three months, as investors got over the shock of that 50% dividend cut in February, and decided that several consecutive months without a profit warning was something worth celebrating.
New chief executive Warren East is thinking big, or rather small, with plans to reduce costs and simplify operations, in the hope of putting the company's massive £76.4bn order book to more profitable use. This type of overhaul takes time, so don't expect a quick return on your investment, especially with earnings per share (EPS) forecast to fall 56% this year. But this British engineering giant will surely hit its stride at some point, possibly 2017, when EPS are forecast to rise 32%. At that point, you will be glad you bought at today's valuation of 11.44 times earnings.
It has been a long time since mobile phone giant Vodafone Group(LSE: VOD) posted market-beating share price growth, but it is still up a steady 30% over the last five years, with all those juicy dividends on top, too. Yielding 4.93% today, Vodafone remains a great income call. Until you look at the cover, that is, which looks a little perilously skinny at just 0.5. That should improve now that the multi-billion pound Project Spring and infrastructure programmes are mostly complete, easing the strain on its purse.
Struggling European markets such as Spain and Italy have hit growth plans, but rapid growth in India and Turkey have helped offset that. Forecast EPS growth of 22% in the year to March 2017 and 30% the year after offer hope. However, it is hard for a company this size to justify its stonking valuation of 40.9 times earnings. Vodafone remains a stalwart hold, but a less compelling buy.
Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.