Why is it so cheap?

A few years ago, if you’d tried to tell people that it would soon be possible to buy shares in Lloyds Banking Group (LSE: LLOY) on a P/E of under 10 with a confident 7% dividend yield on the cards for 2017, you’d probably be laughed out of the room.

So why are Lloyds shares so cheap at just 73p? It’s partly due to the malaise still affecting the banking business — it seems to me that the good banks are being marked down as fiercely as the bad ones. Part of it, too, will be down to the overhang of the government’s remaining holding and the effect it could have on the price when it’s all sold off. But I think Brexit fears must surely be playing their part, too.

I make no secret of my opinion that voting “leave” on 23 June would tip us into a new economic mess just as we’re getting out of the last one, and the Treasury seems to share that view with this week’s warning that we could lose up to 820,000 jobs within two years if it happens. A lot of that damage will surely be done to London’s banking centres.

But I’m still happy to hold Lloyds shares, and I can see two crucial things needed for them to come good — a “remain” vote next month, and then the sale of the government’s stake. Once those two events are behind us, I can see a doubling in the price as a serious possibility.

Will it ever come right?

A warning this week plunged Marks & Spencer (LSE: MKS) into turmoil again, as the company announced that poor clothing sales coupled with difficult trading conditions will have “an adverse effect on profit in the short term“. Chief executive Steve Rowe said “We are clear on the actions needed to recover and grow Clothing & Home, which is our top priority” — but come on, M&S has been saying that for years!

It’s no surprise that M&S shares plunged on the day, and they’re now down 11.5% since Tuesday’s close, to 393p — and over the past 12 months, we’re looking at a 33% loss.

What would it take for the shares to double in price? With forward P/E ratios of around 10 to 11 and predicted dividends at 4.5% and more, there’s clearly room for growth. But we need to see the end of the rhetoric and the start of some results in the clothing department before any serious uprating is likely… and that could still take some time.

Profit from potash?

Sirius Minerals (LSE: SXX) must be a candidate for doubling, mustn’t it? Actually, since this year’s low point in February, the shares have almost done that already, with a 76% rise to 18.6p. But shareholders will be hoping for a lot more than that in the coming years, having invested at such an early stage of the company’s York Potash Project.

There are huge deposits of polyhalite under the North York Moors, and Sirius is hoping to rake in between $1bn and $3bn a year by the time the plant is fully operational. But that isn’t expected until 2021, and the funding needed to reach that stage is still to be found.

I reckon Sirius shares will either multi-bag in the next five years, or will collapse if too much dilution is needed to secure the funding — though continuing upping of resource estimates puts me in the multi-bagger camp right now.

The post Which will double the quickest, Lloyds Banking Group plc, Marks & Spencer Group plc or Sirius Minerals plc? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. 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.

Earnings per share have been a little erratic in recent years, but after a 9% increase in the year to March 2015, the company was able to pay a 5% dividend yield. With National Grid’s policy of lifting its ordinary dividend each year at least in line with the rate of RPI inflation, there’s a rise of around 2% predicted for the year just ended, with the interim payment already raised by that level. With National Grid shares having put on 11% in the past 12 months, to 988p, it would yield 4.4%.

National Grid shares are good for those who wish to reinvest dividends too, as the company runs a scrip dividend scheme so you can take new shares instead of cash — and to offset the dilution effect, it regularly buys back some of its own shares.

A forward P/E of around 15.5 is fractionally ahead of the FTSE average, but for such dependable income, I reckon that’s good value.

Retail recovery

After years in the wilderness, Marks & Spencer (LSE: MKS) could be back on track. The high street stalwart is, admittedly, still struggling to get its clothing onto the backs of younger shoppers — in its fourth quarter update it revealed a 1.9% fall in Clothing and Home sales. But M&S.com is doing well with an 8.2% rise in sales, and the shift to online selling is vital if M&S is to compete successfully with the likes of Next, ASOS, and the rest.

How those sales will translate into profit is something we’ll hear on 25 May, when the company is due to release full-year results — and there’s a modest EPS rise expected. M&S shares could certainly do with a boost, after shedding 25% over a year to 412p, and gaining just 4% over the past five years.

With EPS forecast to rise gently over the next two years, and with the dividend expected to yield 4.4% this year and predicted to rise to 5% by March 2018, we’re looking at a current P/E of around 12 and set to drop to under 11 in two years. That makes M&S shares look like decent value to me.

Reliable utility

A day later, on 26 May, we should have full-year results from United Utilites (LSE: UU), and that’s another bedrock of many a long-term portfolio. After three years of double-digit rises in earnings per share, there’s a fall back of 10% expected for the year to March 2016, but the company’s progressive dividend policy should still see the annual payment rise at least in line with inflation — as confirmed at interim results time back in November.

United Utilities shares have had a pretty flat 12 months, and the current price of 942p suggests a likely dividend yield of 4.1%, which is pretty respectable. On a P/E of around 20, United Utilities shares are the priciest of these three, but that’s the premium the market is happy to pay for super reliability.

The post 3 hot shares for May: National Grid plc, Marks and Spencer Group plc & United Utilities Group plc? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.