When big companies lose their way, it can take them a long time to get on track. The following three stocks have rattledoff in the wrong direction in recent years, canthey find their way back?
Brightening outlook
Pharmaceutical giant GlaxoSmithKline (LSE: GSK) is seenasone of the safest bets on the FTSE 100 but it has hasntbeen a winning one in recent years. The stock is up just 7.5% over the past five years, although in fairness, that is double the growth on the FTSE 100. The reasons Glaxo went AWOL have been well documented, including the embarrassing China bribery scandal, and farmore damaging concerns about prospectsfor its drug pipeline.
The outlook is finally brightening on the latter front with first quarter results showing new product sales soaring to821m, more than double the same period last year. New pharmaceutical product sales now represent 20% of total pharma sales,driven by HIV, respiratory and meningitis vaccines. Sales from this sourceoffsetabout 70% of the decline in former cash cow Seretide/Advair.
The results suggest to me that Glaxo is turning the corner, with first quartersales up11% to 6.2bn and core earnings per share up 14% to19.8p. Managements plan to diversify from blockbuster treatments into consumer health vaccines should also keep things moving along. The yieldstill looks lovely at 5.52%, the only downside beingthat Glaxo is no longer cheap, trading at 19.15 times earnings.
Lacklustre performance
It is a long time since global drinksgiant Diageo (LSE: DGE) showed some spirit. Its has struggled sincenew boss Ivan Menezes took over the reigns from acquisition-thirsty predecessorPaulWalsh three years ago. Lacklustre performance has forced Menezes to water down his own earnings, slashing his payfrom 7.3m to 3.9m last year. HisDrink Better campaign equated to Drink Less in practice.
Menezes cannot be blamedfor the emerging market slowdown, or the Chinese crackdown on gift giving, but it is hard for him to shrug off the salesslowdown in North America. Diageosshare price has been inslow decline forthree years yet Diageo nevertheless trades at a surprisingly pricey 21.27 times earnings. However, a solid 3.07% yield and forecast EPS growth of 9% in the year to June 2017 (after three years of declines) may also tempt optimists.
No mean feat
WM Morrison (LSE: MRW) enduredsuch a dramatic fall from grace that it was hard to see a way back for the struggling grocery chain. Yet sentiment turned and todays price of 190p is comfortably above its 52-week low of 139p.
The German discounters will continue to nibble at its heels but chief executive David Potts recently delivered like-for-like sales growth of 0.7% in the 13 weeks to May, no mean featin this environment, and Morrisonscontinues to generate plenty of cash. Plans to simultaneously improve the customer experience and drive downnet debt targetappear to be paying off.
This is a toughsector, but Morrisons looks like it might just tough things out. It may trade at a pricey24.5 times earnings but forecast EPS growth of 31% suggest this could justbe justified.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Diageo. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
