Thomas Cooks (LSE: TCG) recent results showed a smaller quarterly loss: although it is not thebest of times for the travel operator, one may well argue that itsshares could be an opportunistic bet in the 115p-130p range!
But will Thomas Cook shares also deliver more stable returns than those of more cyclical stocks such asBG Group (LSE: BG)and BP(LSE: BP) into 2016? Thomas Cook is flat year to date, whileBG and BP are up 12.8% and 10.7%, respectively.
Here are a few things you should know about these three companies prospects.
Thomas Cook IsLess Risky Than In ThePast
Now trading at 126p, Thomas Cook stock could easily change hands some 15p to 25p higher than its current level later this year say, by the end of the third quarter.
This is a speculative trade rather than a long-term value proposition, in my view, even though management is making good progress with regard to the companys debt position, and comparable quarterly figures should be easy to beat in 2015, particularly if current trends for exchange rates continue andThomas Cooks core profitability rises in the UK. Thomas Cooks performance in Continental Europe will likely continue to be volatile due to tough trading conditions and downwards pressure on prices, while other factors, such as hefty payouts for delayed and cancelled flights,could impact its future valuation.
The shares, however, trade below 4 times on a forward adjusted operating cash flow basis,which renders them rather attractive. Moreover, Thomas Cook operates in a sector where consolidation is on the cards, as proved last week by news thatonline travel company Expedia would buy Orbitz Worldwide for about $1.3bn in cash.
BP & BGAppealing Long-Term Value Propositions
Low oil prices punish shareholders of BG and BP, yet neither stock should be considered riskier than Thomas Cook, one reason being that BP and BG assets could easily attractbidsat or above fair value, while shareholder-friendly activity should not be ruled out, either.
While I expect BG to be more volatile than BP, upside for BG shareholders should be greater into 2016, based on restructuring potential and fundamentals vis-a-vis several trading metrics.BPs trading multiples and fundamentals signal that investors may have overreacted to recent news and projections concerning oil prices, particularly because cuts to heavy investment will likely preserve the payout ratio, although many analysts seem to disagree.
Since its shares traded below 400p, I have pointed out that BP could easily rally to at least 500p (10%+ upside from its current level), but a fair value in the region of 1,100p (13% upside) is not out question for BG.At BG, new boss Helge Lund has joineda month earlier than expected: his strong ties in the marketplace will likely allow BG to carry out key divestments, which are pivotal to value creation and to support the payout ratio into next year.
BP and BG are shares you should consider for a diversified portfolio, which must also comprise low-risk shares such as those included in our latest value report, most of which pay generous dividends.
I believe many of the company included in our FREE reportwill likely deliver pre-tax returns of 20% or more annually into 2016 simply becausethese yield stockshave solid balance sheets, strong cash flows and generate record profits. Thefull list of our top value candidates, whichiscompletely freeand comeswithout further obligations, is only one click away…
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