Shares in Standard Chartered (LSE: STAN) fell another 5% today, on news that Fitch Ratings has downgraded the banks credit rating from AA- to A+. The credit ratings firm said unfavourable profitability and asset quality trends as well as its underperformance relative to peerswere the main reasons behind its decision.
Fitch has also maintained its rating outlook as negative, which indicates there is a heightened probability of another downgrade. This decision stems from the risks of further downturn in the credit cycle as well as high management and staff turnover, which could undermine the implementation of the banks new strategic plan.
Standard Chartereds new strategic plan, which was only unveiled on Tuesday, envisages 15,000 job cuts over the next three years, the sale or restructuring of $100bn worth of risk-weighted assets and a $5.1bn rights issue to shore up its capital position. The banks new strategy would enableitto focus on retail banking and the growing wealth management market in Asia, and move away from riskier lending, particularly inthe cyclical commodities sector.
Although this new plan should help Standard Chartered to become leaner and more profitable in the longer term, itstill faces major headwinds in the near term. Economic conditions in emerging markets will likely worsen further and Standard Chartered still has some $43bn worth of loans linked to the deteriorating commodities sector. This should mean loan losses could still have much further to rise, and the banks earnings much further to fall.
So, whilst Standard Chartereds shares have lost 58% of its value over the past two years, I would still prefer to avoid investing in the bank.
Shares in Rolls-Royce (LSE: RR) have performed similarly poorly over the past two years, dropping 39% in the same period. Its commercial aviation engine division, which had until now been unscathed by falling demand, saw its sales grow significantly more slowly in its latest first-half results.
Although lower than expected demand for Airbus A330s had been partly to blame, airlines have been holding off purchases ofolder Trent 700 engines in anticipation of the introduction of the replacement Trent 7000 model. This should mean the slowdown in sales will only be temporary, as demand for widebody aircraft continues to be buoyant, despite the slowdown in emerging markets.
So. although Rolls-Royce is set to see its underlying earnings fall by as much as 17% this year, the positive outlook on the companys long term fundamentals should mean the companys shares are still worth buying. Its valuations are also attractive, with its shares trading at a forward P/E ratio of 12.5, and carrying a forward dividend yield of 3.4%.
Countrywide (LSE: CWD) surprised investors yesterday, with a worse than expected 11% decline in operating profits for the first nine months of 2015. Its shares have fallen by 22% in the past six months, as the recovery in the number of property transactions failed to materialise over the summer period.
The company now expects property transactions will be 5% lower this year than in 2014, and this would also mean operating profits for the full year will be less than last year.Although, the near term outlook for the sectoris gloomy, the longer term outlook is still positive. Economic conditions in the UK remain relatively strong, and this should mean property transactions should eventually pick up.
On top of this, Countrywides valuation is attractive. Its shares now trade at just 12.6 times its expected 2015 earnings and carry a forward dividend yield of 3.4%.
These five large-cap shares have been selected for their combination of income and growth prospects. Theygenerate stable cash flows from their dominant market positionsand broad global exposure.
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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.