Cashing out

The 200-year-old company has struggled lately but management said today’s much improved results are laying strong foundations for the future with continued progress across all three divisions. Group revenue jumped 17% on a reported basis and 10% on an organic constant currency basis. Profit before tax stood at £57m, turning around last year’s loss of £122.3m.

This is nice, but of no use to anybody who does not already hold the company’s stock as the board also announced it has reached agreement on the terms of a recommended cash acquisition of Laird’s entire issued and to-be-issued ordinary share capital.

Shareholders are to receive a highly generous 200p in cash for each Laird share held, representing a premium of approximately 72.6% to yesterday’s closing price of 115.9p. This has driven Laird’s shares to 202.6p. It’s too late, but don’t despair as there are always more opportunities out there, like this high-flyer.

Sky high

Defence and aerospace engineer Cobham (LSE: COB) is putting on a show today, its share price soaring 15% on publication of its preliminary results for the year ended 31 December. It needed some good news like this, its share price is still trading 55% lower than it was three years ago.

Management struck a bullish tone from the off by hailing an encouraging first year of turnaround, with increased focus, reduced risk, and a more resilient balance sheet. My Foolish colleague Kevin Godbold saw this coming months ago.

Highlights included a 6% rise in revenue although this was mostly due to favourable currency translation, with organic revenue growth of just 1%. Underlying operating profit of £210.3m was slightly ahead of expectations. Cobham also reported strong free cash flow generation as a result of management focus, later phasing of 2016 onerous contract cash flows, lower capital expenditure and £27m of advance customer receipts.

Risks and rewards

Cobham is also progressing delivery on its 2016 onerous contracts, including KC-46, although it says risks and challenges remain. Best of all it has a more resilient balance sheet, with year-end gearing ratio at 1.3 times and US$545m revolving credit facilities refinanced for five years or more. The agreed divestment of AvComm and Wireless test and measurement will bring in US$455m cash. It will also increase focus, reduce risk and further strengthen the balance sheet.

Last month my Foolish colleague Roland Head was warning of the many dangers posed by this turnaround stock and the sky is not completely clear. Earnings per share growth has been negative for years, with City analysts forecasting another 1% drop in 2018, but then a 23% rise in 2019. I only wish Cobham was cheaper, but it trades at a pricey-looking 22.4 times forecast earnings. Buckle up: the ride could be bumpy but ultimately rewarding.

The post If you missed this 75% share price surge here’s another turnaround stock you might like appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The electronics manufacturer had moved higher in the lead-up to today’s third quarter results and, with trading numbers surprising to the upside, the stock value popped back through 160p to trade at its highest since March. It is currently 4% higher on the day.

The London business announced that revenue for the third quarter continued the “much improved” performance seen in the first half of 2017. Sales shot 19% higher during January-June, to £245m, or 16% on a constant currencies basis.

While third quarter numbers benefitted from the earlier timing of public holidays in Europe and Asia, the improving underlying performance across core divisions was still apparent. At Performance Materials, organic sales detonated 13%, while at Connected Vehicle Solutions and Wireless and Thermal Systems they improved 20% and 17% respectively.

As a result Laird advised that full-year underlying profit before tax will register at the top end of market expectations.

Monster dividend growth ahead?

Laird has had to take the hatchet to dividends more recently due to previous trading troubles and its stretched balance sheet, the firm binning a final dividend for 2016, resulting in a full-year payment of 4.53p per share (down from 13p in the prior period).

And City analysts are predicting another drop this year, to 3.1p. This results in a handy-if-hardly-spectacular 2.1% yield.

But the dividend picture improves significantly from next year as Laird’s recovery strategy beds-in, the total dividend predicted to leap to 4p, shoving the yield to 2.8%.

City analysts are expecting earnings to slide 6% in 2017, although this would mark a significant improvement from the 38% fall posted last year. And Laird is expected to get earnings moving back in the right direction from next year, a 10% rise currently forecast for 2018.

Given the terrific sales momentum that Laird is now experiencing, I reckon it is worthy of a slightly-toppy prospective P/E ratio of 16.2 times

Merger magic

Standard Life Aberdeen (LSE: SLA) is another dividend star I reckon is dealing far too cheaply at the present star.

It isn’t hard to see why investors have failed to pile into the business of late given the trading difficulties Standard Life has endured more recently (it racked up net outflows of £3.7bn during January-July). But I am convinced the long-term earnings outlook remains incredibly exciting.

The merger of Standard Life and Aberdeen Asset Management earlier this month has created a financial giant with significant scale, a better revenues mix and terrific cross-selling possibilities, while the tie-up also cooks up plenty of cost synergies.

As a consequence, the FTSE 100 beauty is expected to see earnings pound 58% higher in 2017, or so say City analysts, and it is predicted to follow this up with an 8% bottom-line improvement next year.

Despite predictions of strong and sustained profits jumps, however, the market seems to be undervaluing the business in my opinion — Standard Life Aberdeen carries a forward P/E ratio of just 14.8 times as well as a corresponding sub-1 PEG reading of 0.3.

Moreover, these perky predictions, in addition to the company’s robust cash position, also translate into expectations of meaty yields. The 21.6p per share reward predicted for this year yields a splendid 4.9%, while 2018’s expected payout of 23p yields a knockout 5.2%.

The post Buckle up! 2 value dividend greats that could make you stinking rich appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Life Aberdeen. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Electronic shock

The electronic component maker’s share price hit a five-year low in mid October after a profit warning bashed its shares down from 236p to 122p in a couple of days. Any company will take time to come back from a shock like that. The setback was triggered by delays in the mobile devices cycle and increased margin pressure, with new chief executive Tony Quinlan cutting full-year guidance for underlying profit before tax to £50m, against analyst consensus of around £75m.

Management embarked on the time-honoured process of cutting costs and managing cash better, and today’s results suggest the strategy is paying off. Laird registered a “much improved” first-half performance with encouraging progress across all three divisions. Group revenue is up 25% on a reported basis and 10% on organic constant currency, with underlying profit before tax up 47% to £24.1m.

Mighty Quinlan

Net debt-to-EBITDA more than halved from 3.2 times to 1.5 times after completion of a £185m rights issue in April. Profit before tax rose from £6.2m to £19.4m. Laird also expects to cut costs by $15m in 2017 and implement a new, simplified, divisional structure.

Quinlan hailed encouraging progress in all three divisions, which reinforces his expectations for the full year: “The recovery has been underpinned by our relentless focus on driving operational improvements and this remains an ongoing priority for Laird. We are establishing stronger foundations which will leave us better placed to take advantage of the significant future growth opportunities that exist in our end markets.”

Laird of the manor

Warm words, but how does the future look for this £728m company? Right now, it appears a tempting opportunity. The shares are up almost 5% to 148p on today’s report, but this means they have recovered only around 20% of last year’s losses, leaving scope to make up more lost ground. Broker Berenberg recently set a target price of 240p which would suggest potential upside 62% if correct.

Currently trading at 13.6 times earnings, there is still some discount on the price, a view confirmed by a PEG of -0.4.  All of which looks promising but we should not underestimate the problems the company has been through, with pre-tax profits of £48.1m in 2014 plunging to £15.4m in 2015, then turning into a shocking loss of £122.3m in 2016.

Comeback kid

Today, Laird reported that operating cash flow fell 18% from £25.4m to £20.8m. It is still paying a dividend, declaring an interim payment of 1.13p today, but that is down sharply from 4.53p in first half 2016.

That said, Laird’s direction of travel looks positive. Net debt fell from £263.1m to £175.1m, while basic earnings per share rose from 0.6p to 3.3p. Profit after tax is up from £2.3m to £14m. The market likes what it heard today, and so do I.

The post Laird plc fights back with 40% leap in revenues appeared first on The Twelfth Magpie.

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A changing business

Reporting somewhat downbeat results on Thursday was technology, content and services company BNN Technology (LSE: BNN). It reported a decline in revenue of over 72% versus the prior year as it pivoted into a technology company. It began to generate revenues from its new business model in the second half of the year, which meant that its operating loss increased from £9.3m to £16.5m in 2016.

Much of the fall in profitability was due to investment in people and technology. The company also announced a £25m placing on Thursday which could help to improve its overall performance and create a sustainable growth stock. It has already made progress in signing mobile content and competition deals, while other commercial deals in its payments business indicate that the company could be on the cusp of a more profitable period.

Certainly, there is a considerable amount of risk for the company’s investors. Any company which makes major changes to its business model could encounter short-term challenges which may lead to disappointing financial performance. However in the long run, BNN seems to have the scope to mount a successful turnaround.

Improvement prospects

Also raising new funds for future growth recently was engineering solutions company Laird (LSE: LRD). It raised approximately £185m from a rights issue. The proceeds will be used to reduce borrowings and should strengthen the company’s financial position. This comes after a rather disappointing set of results, where underlying profit before tax declined by 30% and operating cash flow was 48% lower than in the previous year.

Profitability was adversely affected by weaker sales and margin pressure in the Precision Metals division, as well as a challenging environment elsewhere in Laird’s business and losses from the Novero acquisition. And with a decline in earnings of 11% forecast for the current year, things look set to get worse before they improve for the company.

However, next year Laird is set to return to positive earnings growth. Its bottom line is forecast to rise by 6%, which has the potential to shift investor sentiment higher. With its shares trading on a price-to-earnings (P/E) ratio of 15.2, they seem to offer value for money versus a number of sector peers. Certainly, a turnaround will take time, but for patient investors Laird could prove to be a worthwhile recovery stock for the long term.

The post 2 ‘turnaround’ stocks to watch in April appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens owns shares of Laird. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In this article I’ll look at two industrial stocks that sit on opposite sides in this debate. One is a high performer whose shares have risen by 7% today. The other is raising cash from shareholders to fix its balance sheet, but looks increasingly affordable.

Sales up 4% in tough market

Aerospace and automotive engineering group GKN (LSE: GKN) opened Tuesday’s results with news that its sales rose by 4% to £7,231m last year. The firm’s adjusted pre-tax profit rose by 12% to £678m.

GKN’s adjusted earnings rose by 12% to 31p per share, while the dividend increased by 2% to 8.85p. These figures give the shares a trailing P/E of 11.7 and a yield of 2.4% at 365p.

That seems like a reasonable valuation. But having looked more closely at today’s figures, I’m not sure GKN’s performance and valuation are quite as attractive as they seem.

Too many adjustments?

My main concern is the massive difference between GKN’s adjusted figures and its reported profits. Reported pre-tax profit rose by 19% to £292m in 2016. That’s a healthy increase, but it’s less than half the group’s adjusted pre-tax profit of £678m.

I believe that GKN’s adjustments present a very flattering view of the business. By ignoring the depreciation of certain assets for which the firm paid cash in the past, management can provide a more flattering view of profitability. But as a potential investor, this isn’t what I want.

I would argue that a more realistic view of GKN’s underlying pre-tax profit last year would be about £480m. I estimate that this would translate to adjusted earnings of about 23p per share, which would give GKN a P/E of 15.7.

I should stress that this is only my personal interpretation of GKN’s figures. I still rate this business highly. But for me, the shares aren’t quite cheap enough to buy at the moment.

Will this 50% faller bounce back?

Electronics group Laird (LSE: LRD) has lost half of its market value over the last year. In Tuesday’s 2016 results, chief executive Tony Quinlan said it had been “a disappointing year”. The group announced a statutory loss of £110.8m for 2016 and said it would raise £185m through a rights issue to help reduce debt.

Shareholders will be entitled to buy four new shares at 85p for every five shares they currently own. This gives a theoretical ex-rights price of 135p per share, which is the price at which the stock is expected to trade after the rights issue is completed.

Laird expects to receive £175m after costs. This will be used to repay borrowings, which should reduce the group’s net debt to about £170m. Based on last year’s figures, that will give the group a net debt to EBITDA ratio of about 1.7x. That’s still moderately high, but is comfortably within Laird’s banking limits.

Using consensus forecasts for 2017 and today’s guidance, I estimate that Laird stock will trade on a P/E of about 15 after the rights issue, with a forecast yield of about 2.3%.

I’m still wary about debt, but if trading starts to improve then Laird could become an attractive buy. The shares have gone onto my watch list.

The post Turnaround vs top performer: which stock should you buy? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

With company results starting to flood in, I reckon smart investors should be looking for those offering strong and reliable dividends. Here are three that are looking tasty:

Attractive odds

Shares in William Hill (LSE: WMH) have lost 32% in the past 12 months, as earnings have failed to impress — EPS fell by 17% in 2015 and there’s a further 14% drop on the cards for the year just ended. Increasing regulatory worries have also dogged the business, and the firm recently told us that 2016 profits are likely to be at the lower end of expectations. But I think we could be looking at an oversold bargain here.

It can be a cyclical business over the short term, but in the long term our species does seem to have a strange compulsion for throwing money away on gambling — and that’s not going to change.

And on the fundamentals front, William Hill shares are on a P/E of a fairly modest 12, and that would drop as low as 10 by 2018 if forecasts turn out. But the key thing for me is the dividend, which should average around 5% over the next three years, and it should be around twice covered by earnings.

Full-year results are due on 24 February.

Solid as houses

I’ve been going on for ages now about how silly-cheap Taylor Wimpey (LSE: TW) shares became after the Brexit vote, and though the share price has since recovered some of its immediate loss, I’m still seeing a bargain. The worry was that Brexit could trigger a house price fall — but we could have one and our builders would still carry on making oodles of cash to hand out as dividends.

Taylor Wimpey’s year-end trading update, ahead of results due on 28 February, told us of “robust trading despite wider macroeconomic uncertainty“, and said “We expect to deliver full year profitability at the upper end of market consensus“. What that should mean is a rise in EPS of close to 20%. Sure, the big earnings growth of recent years is set to slow, but even more modest expansion would still put the shares on a P/E of under nine by 2018.

And the dividend? Well enough covered, and should come in around 6.7%, with forecasts suggesting as much as 9% by 2018 at today’s share price.

A gamble?

My third pick is quite a risky one, and it’s electronics and security systems specialist Laird (LSE: LRD). Laird shares have slumped of late, after the firm announced a £185m rights issue and scrapped its final dividend for 2016 — and I’m still suggesting Laird as a possible dividend choice after that?

Well, firstly, the firm also said that “the Board intends to resume dividends in 2017 based on a dividend per share that is covered 3x by underlying earnings per share“, and even though we’re now looking at 2016 and 2017 providing cash of less than half 2015’s dividend figure, with the share price having crashed that would still yield around 3.5%.

Now, that’s not an exciting yield, but as a rebased level on which to restart a progressive dividend policy, it’s really not bad at all. And with the City forecasting a return to earnings growth, we could be looking at a decent long-term income play here.

Results should be out on 28 February.

The post Should you buy these 3 great dividend stocks in February? appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

Biggest losers

Accusations of dubious working practices, public spats with politicians and numerous public relations gaffes have led shares in Sports Direct to surrender over half their value in the last 12 months.

Although the company is at pains to say that it’s addressing its various problems, this is unlikely to soothe investors nerves after December’s interim results revealed a 57% plunge in half-year profits. News that the company is in the process of purchasing a £40m corporate jet isn’t the best way of regaining trust.

Back in October, Laird’s shares tanked after the company reported reduced demand from its biggest customer, Apple. This was particularly problematic for the £420m cap component supplier as it had been hoping for a surge in demand from the latter’s new phone in September. When this didn’t happen, Laird was forced to estimate that full-year pre-tax profits would be far less than the £67m-£80m analysts were expecting. The company was also dealt a blow when Samsung — another customer — experienced problems with its now infamous Galaxy Note 7.

Things haven’t been much better for £383m cap Countrywide, the UK’s biggest lettings and estate agency company. Priced around 400p at the start of the year, it’s been downhill ever since June’s referendum vote triggered a slowdown in the property market. Last month’s decision by Philip Hammond to ban companies from charging fees to tenants only increased the pain. 

Despite losing over 57% in value in 12 months, shares in Countrywide are likely to dip even lower in the short term as the company — along with Laird — is removed from the FTSE 250 and fund managers adjust their portfolios.

Contrarian bets?

If you can ignore the behaviour of its board (which, admittedly, is quite a big ask), Sports Direct is still a decent business. After all, this is a company that once managed to generate consistently high returns on capital and double-digit earnings growth.

That said, a forecast price-to-earnings ratio (P/E) of 16 — thanks to a predicted 66% reduction in earnings per share — makes this one to avoid for now. There’s not even a dividend to tide investors over.

On a forecast P/E of just 10 for 2017, shares in Laird might be a more enticing proposition. Although warning that visibility on volumes “remains poor” for its Performance Materials division, the company’s wireless division continues to perform well with Q3 revenues up 58%. Given that this side of the business is involved in providing aerials and systems for the connected vehicle sector (a potentially huge growth market), things could dramatically improve for Laird in the medium term. The £263m debt on its balance sheet is still a concern though.

Shares in Countrywide now trade on a P/E of under 6, making it the cheapest of the three to own. However, those attracted to value will need huge amounts of patience and zeal (not to mention a risk-tolerant nature) with the manner of our departure from the EU still to be officially confirmed. With so many better opportunities in the market, Countrywide still warrants a wide berth.

The post These 3 dogs have turned £10,000 into £4,300 in one year appeared first on The Twelfth Magpie.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended 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.

Underlying profit is expected to be around £50m for the full year, with the company’s operational improvement programme on track. This will deliver annualised savings of at least $20m from 2018, with around $15m expected in 2017. This should help to improve Laird’s financial performance and also aid its financial position.

Encouragingly, the Wireless Systems division has been able to integrate Novero within the Connected Vehicle Solutions (CVS) business, which is expected to be profitable in 2017. However, the Performance Materials division still faces a difficult outlook and more work is needed in order to improve its financial performance.

Limited headroom

Laird expects net debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) to be within the group’s covenant of 3.5 times for the full year. However, Laird’s headroom is somewhat limited and so a rights issue to raise £185m seems to be a prudent option to take. This should provide Laird with a net debt-to-EBITDA ratio of between one and two over the medium term, which will allow the company to invest for future growth.

In addition, the cancellation of 2016’s final dividend may be disappointing in the short run. However, it should provide the company with greater financial strength through which to improve its performance. And with dividends due to return in 2017 at 33% of earnings, rising to 50% of earnings in the medium term, Laird remains a relatively appealing income play for patient investors.

Clearly, Laird is enduring a difficult period, but other technology companies have done likewise and emerged in a stronger position. For example, Imagination Technologies (LSE: IMG) posted a loss last year and endured a challenging number of years. In fact, from 2012 to the end of 2015 its share price declined by around 77%. In 2016, however, the price has risen by 63% as its turnaround begins to gather pace.

Looking ahead, Imagination Technologies is forecast to return to profit this year and record a rise in its bottom line of 35% next year. This indicates that further share price growth is ahead. While Laird is some way off that level of performance, today’s rights issue should help to point it in the right direction. It provides the company with the financial strength to invest for future growth, as well as to reduce its risk profile. As a result, buying Laird now could be a sound move, although short-term volatility is highly likely.

The post Laird plc slumps 15% on £185m rights issue appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens owns shares of Laird. The Motley Fool UK owns shares of Imagination Technologies. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Laird noted last month that “the much slower production ramp, pricing and margin pressures and the overall lack of visibility in the Mobile Devices market” has weighed on trading activity more recently.

And market saturation in the smartphone sector suggests that the component builder could keep on struggling.

Recent share price weakness has seen dividend yields leap at Laird. So while the City expects the payout to fall to 11.3p per share in 2016 from 13p last year — and again to 11.2p in 2017 — these figures still yield a market-smashing 8.1% and 8% respectively.

However, I believe investors should be braced for more painful dividend cuts than those currently forecast.

A predicted 34% earnings decline in 2016 leaves the projected dividend covered just 1.3 times, well below the safety threshold of two times. And despite a predicted 17% turnaround next year, the assumed payout remains covered just 1.5 times by predicted earnings.

I reckon the prospect of any sort of bottom-line recovery is far from assured given the difficulties in Laird’s key markets, a scenario that could leave Laird’s dividend policy in tatters.

And with the firm also seeing net debt ballooning to £263.1m as of June, thanks in part to the acquisition of automotive technology specialist Novero in 2015, I believe current yields are looking very top heavy.

Pipe dreams?

Oilfield services provider Petrofac (LSE: PFC) is another FTSE 250 play whose dividend outlook is far from assured.

The abacus bashers expect the business to keep the full-year payment locked at 65.8 US cents per share in 2016, creating a dividend yield of 6.4%. And the reward is anticipated to edge to 67.3 cents the following year, nudging the yield to 6.6%.

However, the poorly state of the oil market makes me question whether Petrofac will be in a position to get dividends chugging higher again.

The company warned in August that “there have been few project awards in our core markets in the year to date,” a trend that saw Petrofac register orders of just $1bn during January-June.

And like Laird, Petrofac has the added problem of a mounting debt pile to contend with. Net debt rose to $877m as of June, surging from $686m a year earlier.

I believe investors should err on the side of caution and resist the temptation of Petrofac’s big yields. Indeed, a flurry of fresh capital expenditure cuts from producers across the oil industry in recent weeks suggest that more top-line turbulence could be just around the corner.

The post Are these monster yielders a risk too far? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

One way to reduce this risk slightly is to limit yourself to the FTSE 350. Businesses at this level should generally have reliable auditors. They should also be able to raise cash by issuing new shares, or borrowing at reasonable rates, when needed.

With these advantages in mind, I decided to take a look at the two biggest fallers in the FTSE 350 over the last 12 months. Is either of these firms worth buying?

A controversial pick?

The last year hasn’t been good for Sports Direct International (LSE: SPD). The firm’s shares have fallen by 55%, and its profits are expected to fall by a similar amount this year.

Mike Ashley, the firm’s colourful founder, has now taken charge, assuming the role of chief executive. But Sports Direct faces headwinds on a number of fronts. The weak pound means that import costs are increasing, as most Asian manufacturers sell in US dollars. Operating costs are also expected to rise by 8%, as a result of the national minimum wage and other changes.

Some of these increases should be offset by rising sales. Sports Direct expects revenue to rise by 9% this year. The firm also has a strong balance sheet, with very little debt.

Sports Direct is continuing to expand its store chain and invest in property. I expect Mr Ashley will manage to pull off some kind of turnaround. What’s less clear is whether the firm’s profit margins will return to historic levels, which were higher than those of most other high street chains.

I don’t see any reason to rush in. I plan to wait until Sports Direct’s half-year figures are published in December, before reviewing the situation again.

More trouble ahead?

Electronics firm Laird (LSE: LRD) has lost 61% of its value over the last 12 months. The vast majority of this was the result of October’s profit warning, when the shares fell by more than 50% in one day.

That’s a very big fall for a single profit warning. The shares now look quite cheap based on the latest broker forecasts, which imply a forecast P/E of 9.6, and a yield of 7%. Is this an opportunity to grab a bargain?

I don’t think so. I believe Laird shares have fallen this far because the market believes the firm is going to have to raise cash from investors. The group’s statement on 19 October made it clear to me that debt is likely to become a big problem. Although net debt should be less than Laird’s banking limit of 3.5 times EBITDA at the end of the year, it’s likely to be close.

Laird’s problems are the result of lower-than-expected production volumes, and price pressure from big customers. It’s not clear to me how the firm will be able to reduce its debt levels.

I’m fairly confident that an equity placing or rights issue will be needed at some point. Until that happens — or the group’s debt falls significantly — I’m going to steer clear.

The post A 7% yield is no reason to buy these big losers appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended 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.