Will BT Group plc, Berkeley Group Holdings plc and Burberry Group plc make stellar comebacks?
The prospects for Burberry(LSE: BRBY) may appear to be bleak, but the luxury lifestyle brand has huge long-term growth potential. Of course, its shares price performance says otherwise, with weak investor sentiment pushing Burberry's valuation downwards by 9% since the start of the year.
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Despite this, Burberry has excellent prospects. Notably, it's heavily exposed to the emerging world and this could provide it with a turbo boost since wealth across China, India and the rest of the developing world's middle class is expected to rapidly rise in the coming years. And with Burberry having a high degree of customer loyalty across the globe, it has the potential to increase pricing at a brisk pace, thereby improving sales and margins.
With Burberry trading on a price-to-earnings (P/E) ratio of 16, it may not appear to be hugely cheap. But with a number of other global consumer goods companies trading on far higher valuations, Burberry could see its rating rise over the medium-to-long term. Therefore, it seems to be a strong buy at the present time.
Wide margin of safety
Similarly, prime property developer Berkeley(LSE: BKG) also has strong turnaround potential. Its shares have come under pressure due to concerns surrounding the prospects for the luxury UK housing market, with fears surrounding the EU referendum exacerbating worries that foreign buyers may look outside of the UK in future.
While this is a key risk to Berkeley's growth prospects, the company appears to have a sufficiently wide margin of safety to merit purchase. It trades on a P/E ratio of 8.4 and this indicates that even if its bottom line comes under pressure, Berkeley's share price could still perform relatively well.
In other words, Berkeley seems to have a wide margin of safety and with interest rates forecast to remain low in future years, its performance could prove to be much better than many investors are currently anticipating.
Wait and see
Meanwhile, shares in BT(LSE: BT-A) have fallen by 5% this year even though the company appears to have a bright long-term future. It's seeking to become a dominant player in the UK quad-play market and with it considerable success in terms of winning new customers, the cross-selling opportunities from its new product offerings are significant.
However, with BT forecast to report a fall in its earnings of 7% this year, it seems as though investor sentiment is weakening. This could continue yet further since BT trades on a P/E ratio of 14.5. This indicates that it offers only a slim margin of safety given the risk involved in integrating the UK's largest mobile network into its business -- especially when it's already expanding rapidly.
As such, and while BT could be a sound long-term buy, its shares could become more attractively priced in the short run.
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Peter Stephens owns shares of Berkeley Group Holdings and Burberry. The Motley Fool UK has recommended Berkeley Group Holdings and Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
