TodayIm askingwhether the shine has come off two former retail high flyers and whether its time to focus on a different sector of the market.
Sports Direct, elusive growth
Shares in Sports Direct International (LSE: SPD) have continued to slide this morning after yesterdays disappointing results. The sports retailers shares are now down by 30% from their 52-week high of 820p.
Sales growth during the first half of this year was below expectations. The firms underlying pre-tax profit of 166.4m was lower than expected and analysts now seem likely to cut their full-year profit forecasts.
In my view, shareholders face a dilemma. Sports Direct doesnt pay a dividend, so investors have to rely on the firms share price rising to generate returns. The shares are now worth 23% less than two years ago and have fallen by 30% since August.
Will founder Mike Ashley pull something out of the hat to reignite the firms growth? Perhaps he will, but because hecontrols Sports Direct so closely, investors have little way of knowing what might happen.
Personally, its not a risk Id choose to take, especially given the allegations made in the press this week about the firms employment and pricing practices.
Halfords, shares to get cheaper?
Shares in car parts and bicycle seller Halfords Group (LSE: HFD) have fallen by 38% from the 52-week high of 562p seen in August.
Like Sports Direct, Halfords most recent interim results were below expectations. Like-for-like sales growth of just 1.7% was down from 7% for the same period last year and was less than the 3% expected by City analysts.
However, there are some bright spots. Halfords free cash flow remains strong and should comfortably cover this years forecast 17p dividend. This gives a prospective yield of 4.9%. The firms shares now trade on just 10 times forecast earnings, suggesting that theyre becoming quite cheap.
For shareholders, I think Halfords is more attractive than Sports Direct. I wouldnt sell, but Im not sure Id rush to buy today either. If Halfords has a quiet Christmas then the shares could get much cheaper and become a genuine bargain.
Why buy Glaxo instead?
Halfords and Sports Direct have both delivered strong growth over the last few years, but both firms appear to be entering a period of slower growth.
One firm that could be moving in the opposite direction is GlaxoSmithKline (LSE: GSK). Shares in the UKs biggest pharmaceutical firm have fallen by around 20% over the last two years due to a period of weak earnings.
However, Glaxos recent multi-part deal with Novartis has strengthened and expanded the firms portfolio in key growth areas such as vaccines and consumer health. The deal also helped fund a $4bn reduction in net debt to $10.5bn. Thats the lowest level since 2011.
City brokers now believe that Glaxo is poised for a period of growth. Earnings per share are expected to rise by 16% to 76p for 2015 and then by a further 10% to 84p in 2016.
Glaxo shares offer a 6% prospective yield and are currently trading close to their 52-week low. I rate Glaxo as a good long term buy.
Indeed, I’m not the only Fool with this view. The Motley Fool’s top stock pickers recently selected GlaxoSmithKline as one of their 5 Shares To Retire On.
The Fool’s experts share my view that for investors looking for a reliable and generous long-term income, now could be a good time to buy Glaxo stock.
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Roland Head owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline and Sports Direct International. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
