Winston Churchill once said that a pessimist sees the difficulty in every opportunity, while an optimist sees the opportunity in every difficulty.
With this in mind, how should you behave ifyou are considering aninvestment or if you are already invested inthe shares of ITV(LSE:ITV), Royal Mail(LSE: RMG) and Vodafone (LSE: VOD)?
ITV Warning From Broker: We Have Multiple Sellers
This headline from a City trader caught my attention earlier today, but I havent changed my mind.
ITV is under threat from rising competition and shifting customer preferences, and we should also blame a bad week for earnings at US media companies, with Walt Disneys results pointing to viewers whochoose not to pay for traditional cable and satellite services, while abandoning expensive channel packages.
Very bad news: its flagship ESPN offering is losing traction.
Walt Disney stock plunged, but based on its relative valuation its still 20% more expensive than that of ITV the British broadcaster is notWalt Disney, of course, but it remains a very solid company!
Its shares, down 4% today, trade on forward earnings multiples of between 18x and 17x for the next two years. This is not a particularly high valuation based on its projected growth rate (steady, at 10% a year), a core operating margin in the region 27%, rising earnings and dividends per share, anda strong net cash position.
For me, theres only one call here and that is a buy, in spite of a stock performance that already reads +27% this year.Its not an easy market out there, true, but ITV is well placed to cope with a more challenging environment. According to Thomson Reuters, the average price from brokers stands at 286p, for an implied 5% upside, but it has been a catch-up game for more than a year now between the company and analysts, and I doubt it will be any different over the next couple of years.
Vodafone & RoyalMail: Whats There ToLike?
In fairness, Royal Mail and Vodafone are less straightforward investment propositions whose stock are unlikely to rise significantly for some time.
Vodafones debt pile could become problematic, its underlying margins are thin, and although its growth trajectory for organic service revenues has improved over the last few quarters, its growth rate remains very close to zero.
Its relative valuation is less easy to gauged based on net earnings multiples at about 86x and 48x for 2015 and 2016, respectively than on its adjusted operating cash flow which, however, signals that its shares could be overvalued by at least 20% at 244p, where they currently trade.
I reiterate the view that its high dividend yield signals risk rather than opportunity. Hence,Id be happy to give VOD a pass, while I am not too convinced about Royal Mail, either.
Its share price can be volatile even at the best of times, and its trading multiples at 21x and 19x, based on net earnings for 2015 and 2016, respectively are more likely to promise some capital losses than significant gains. Royal Mail isnt growing, really, and it couldnt be otherwise in this highly regulated sector, where todays results from UK Mail whose stock is down 13% at the time of writing clearly show the risk of investing in any of the traditional players.
It is now clear that the near-term challenges and their impact on the current years performance are more significant than anticipated, UK Mail said today.
Yes, Royal Mail could be a decent yield play, but should you really invest in a company whose earnings growth mainly comes from efficiency measures? Well, I dont think so.
Theres small room for error at operating level, which could even jeopardize the companys dividend policy, in my opinion.
This is why I suggest you spend timereading a report that includes several growth and yield plays, whose valuations are much more attractive than those of Royal Mail and Vodafone, and whose business models are less risky than ITV’s at present time.
Take your time to take an informed decision with the help of aFREE investment reportthatcould help youdetermine which stocks could deliver all-in returns north of 30% a year!
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Alessandro Pasetti 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.