Clearly, its future prospects are highly uncertain. But with the UK economy showing signs of resilience, could it be worth a closer look for less risk-averse investors?

A difficult period

The first half of its financial year has been tough for the business. Consumer confidence has remained at a low ebb, with higher inflation causing household budgets to decline in real terms. This situation is expected to continue throughout the remainder of the year, with the Bank of England unlikely to deliver more than a couple of interest rate rises in the coming months. This may be insufficient to make a major impact on inflation – especially with time lags factored in.

As such, the company’s decline in total sales of 7.7% versus the same period of last year could be a continuing trend. In addition, the weakness of sterling had a negative impact on Laura Ashley’s profitability in the half. It declined to £4.3m on a pre-tax basis, which is significantly lower than the comparable period’s figure of £7.8m.

A potential recovery?

But H1 also saw further progress with online sales. They increased by 5.1% to £26.9m, and a new license partner was signed for Thailand. Furthermore, there is scope for additional growth as the company introduces a new digital platform in the second half of the year. And with further growth potential in Asia following the termination of its license agreement in Japan, Taiwan and Hong Kong, the stock could deliver a recovery in the long run.

In the short run, though, there could be further disappointment for investors in Laura Ashley. As such, there may be lower-risk turnaround opportunities available in the retail space.

Turnaround opportunity

One potential recovery play could be Debenhams (LSE: DEB). It has endured a hugely difficult few years, seeing profitability fall dramatically. With the UK consumer outlook being challenging, it’s expected to report a fall in earnings of 40% in the current year.

However, investors seem to have anticipated further profit declines. The stock now trades on a forward price-to-earnings (P/E) ratio of around 7.5. This suggests they have factored in potential difficulties, and this could mean there’s a wide margin of safety on offer. That’s especially the case since the company is due to return to positive earnings growth of 3% next year.

While Debenhams has put in place an ambitious and slightly leftfield growth strategy which focuses on ‘social shopping’, it could offer high rewards. While risky and potentially volatile, the stock could be a strong performer in the long run for less risk-averse investors.

The post Should you snap up Laura Ashley Holdings plc after today’s 10% slump? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in Debenhams. 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.

While this may mean a difficult short-term outlook for retailers, it could also present an opportunity to buy them while they offer wide margins of safety. With that in mind, here are two retailers which could be worth buying for the long term.

Strong performance

Wednesday saw the release of a first quarter trading update from value retailer B&M (LSE: BME). The company’s revenue increased by 18.3% despite challenging trading conditions and economic uncertainty. In the UK, its like-for-like (LFL) sales growth was 7.3%, with it benefitting from a strong performance from grocery sales.

The company opened nine new UK stores in the quarter, as well as four in Germany. It also has a strong pipeline of new stores planned for the current year. They could provide a catalyst on its top and bottom-line growth rate.

In fact, B&M is planning to open between 40 and 50 new stores in the UK in the current year. It also anticipates having a German estate of 90 stores by the end of the year. This should provide the business not only with more scale, but also more diversified operations.

With consumers likely to trade down to cheaper alternatives now that inflation is higher, B&M could be well placed to benefit from an economic tailwind over the medium term. With the company having a price-to-earnings growth (PEG) ratio of just 1.1 as it offers 15%-16% earnings growth in each of the next two years, it could prove to be a sound buy at the present time.

Turnaround potential

Also offering investment potential within the UK retail sector is Laura Ashley (LSE: ALY). It is a very different business to B&M, since it targets a premium market. It has struggled in previous years and has seen profit decline at a double-digit rate in each of the last two years. Further profit falls are anticipated this year, which could keep investor sentiment at a relatively low ebb.

However, the market now seems to have factored-in the company’s difficult outlook. Laura Ashley trades on a price-to-earnings (P/E) ratio of 8.5 – even when this year’s 35% forecast fall in net profit is factored-in. Therefore, there could be upward rerating potential on offer.

One catalyst to encourage a more positive valuation could be the company’s turnaround prospects. Under its current management team, the company is expected to record a return to growth in the next financial year. Forecast earnings growth of 17% puts the company’s shares on a PEG ratio of just 0.5, which suggests that now could be the right time to buy the stock for the long run.

The post 2 bargain growth stocks I’d buy today appeared first on The Twelfth Magpie.

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Peter Stephens 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.

Game over

In November 2014, the shares of Game Digital (LSE: GMD) hit 338p. Fast forward to today and those very same shares have fallen 90%. Just why anyone would consider investing in the high street video game retailer in 2017 is beyond me.

Recent results tell you everything you need to know. In March, the £59m cap announced a 9.1% dip in revenue to £499m over the 26 weeks to the end of January compared to the same period in 2016. Pre-tax profits dived almost 27% to £16.5m and net cash from operating activities fell 61% to £25.7m.

With the popularity of online gaming making traditional consoles look increasingly outdated, I believe Game — which struggles to compete on price with online behemoths such as Amazon anyway — is a company in terminal decline. 

Aside from my concerns about where exactly it hopes to find and retain new customers, a quick look into Game’s financials is more than enough to put me off the company. Operating margins and returns on capital have fallen dramatically in recent years. Free cashflow? Don’t even go there.

Shares may be trading on just 11 times earnings (assuming EPS growth of 1.6% for the current financial year) but Game is one business that — in my opinion — is very unlikely to recover.

Posh flop?

Holders of Laura Ashley (LSE: ALY) surely deserve a bit of sympathy. The shares were trading around 24p this time last year. Today, you can pick them up for just over 10p – making it the sixth worst performing small-cap on the main market.

A quick recap of February’s interim results for the six-month period to the end of December and this kind of performance should come as little surprise. Back then, the company revealed a 3.5% drop in total like-for-like retail sales with pre-tax profits slumping 28% to £7.8m. At a time when any retailer worth its salt is growing digital sales at a furious rate, it’s interesting to note that online revenue remained almost flat at £25.6m (an increase of just £600,000 on the same period in 2016).

Looking forward, the Newtown-based business is expected to post a 52% drop in earnings per share for this financial year. Dividends are unlikely to be covered by profits and I wouldn’t be surprised if the company’s balance sheet — which once boasted a net cash position — becomes even more fragile. Returns on capital, which used to be so high, are falling rapidly. Free cashflow has dropped off a cliff and, thanks to its significant store estate requiring regular investment, I can’t see this recovering anytime soon.

As inflation rises and consumer belts tighten, Laura Ashley looks more vulnerable than ever. On eight times earnings, this presents as nothing more than a value trap.

Bottom line

When it comes to investing, buying cheap doesn’t always work out well, particularly in the ultra-competitive retail sector. For every company that manages to turn things around, you’ve got several more continuing to struggle or falling into oblivion. As far as I can tell, both Game Digital and Laura Ashley are prime examples of the latter.

The post 2 dangerous value traps I’d sell immediately appeared first on The Twelfth Magpie.

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Paul Summers 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.

Today I’ll explain why I still don’t think that Lonmin stock is cheap enough to buy. I’ll also take a look at a second company which could prove to be a value trap for investors.

Costs are still too high

Lonmin’s share price has fallen by 45% over the last year, as concerns about the group’s future grow. At about 110p, the stock now trades at just 25% of its tangible net asset value of 434p. This might look like a bargain, but there’s a good reason for the market’s caution. The firm hasn’t made a profit since 2013, and it could run out of cash (again) in the next few years.

Revenue fell by 6% to $486m during the first half, despite the US dollar price of platinum group metals (PGM) rising by 8% per ounce. The problem for Lonmin is that as PGM prices have risen, the South African rand has gained strength against the dollar. The effect of this has been to cancel out any potential gains from higher prices.

Production losses earlier this year and the stronger rand have forced it to increase its full-year cost forecasts. The miner now expects unit costs to range from R11,300 to R11,800 per platinum group metal (PGM) ounce this year, up from R10,800 to R11,300 previously.

Given that the group’s average sale price was R10,852 per PGM ounce during the first half, Lonmin seems likely to report a significant operating loss this year. This could be a problem as its net cash balance was just $75m at the end of March, down from $173m at the end of September.

In my view, it’s not clear whether it will be able to return to profit quickly enough to avoid running out of cash. For this reason, I believe this stock remains one to avoid.

A 9% dividend yield?

Interiors and fashion retailer Laura Ashley Holdings (LSE: ALY) remains profitable and pays a generous dividend. But the group faces an uncertain outlook.

Like-for-like retail sales fell by 3.5% during the first half. This contributed to a 30% slump in pre-tax profit, which fell to £7.8m. The interim dividend was cut by 50% to 0.5p.

Analysts expect full-year earnings to fall by 50% to 1.2p per share this year, putting the stock on a forecast P/E of 11. This suggests to me that 2017 forecasts for a total dividend of 1.25p per share carry some risk. This payout would give a massive dividend yield of 9.3%, but would not be covered by earnings. That’s a classic recipe for a dividend cut, especially as Laura Ashley’s net debt rose from £3.7m to £25.1m last year.

I could be wrong. Management may yet pull off a turnaround and save the dividend. But as things stand, I think there’s a real risk that Laura Ashley could be a value trap — a stock that’s cheap for a good reason.

The post Why these ‘bargain’ stocks could seriously harm your wealth appeared first on The Twelfth Magpie.

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Roland Head 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.

Smaller companies aren’t always high-risk growth plays. They can be well established, durable businesses with good cash generation.

In this article I’ll take a look at two with high yields, currency hedging specialist Record (LSE: REC) and retailer Laura Ashley Holdings (LSE: ALY). Record currently offers a forecast yield of 6.3%, while Laura Ashley’s prospective yield is an incredible 9.6%.

Are these yields backed by free cash flow and earnings? Are they sustainable? Why are they so high? These are the questions we need to answer.

Floral furnishings generate cash

Laura Ashley has cranked out stable results in recent years. A lack of debt and limited capital expenditure has meant that cash generation was strong. The group’s policy of paying out almost all of its earnings as dividends was affordable.

This comfortable picture changed somewhat last year, when Laura Ashley took out a £24m loan to buy a new Asian headquarters building in Singapore.

To make matters worse, profits are also expected to fall significantly this year. The latest forecasts from the firm’s house broker suggest that earnings per share will fall by 28% to 1.8p in 2016/17. The dividend is expected to fall from 2.5p to 2p per share, giving a 9.6% prospective yield.

I suspect this dividend will be paid, but having looked at the firm’s accounts for last year, I think that Laura Ashley will probably have to draw on its cash balance to make this payment. Unless earnings rebound strongly during the following year, I believe this supersized dividend could come under pressure.

Are cash returns on the horizon?

Record specialises in managing exchange rate risks for its clients. It’s a niche business that appears to have limited growth prospects. However, Record’s specialist skills allow it to charge high prices. These translate into an operating margin of more than 30%.

A lack of growth expenditure means that Record has built up a £34.7m net cash pile. This amounts to 15.7p per share — more than half of Record’s £59m market cap.

A trading update today confirmed that Record’s full-year results are likely to be in line with expectations. Forecast earnings of 2.24p per share should cover the 1.65p dividend comfortably.

Record’s management has also indicated that in the absence of major growth opportunities, it may consider returning surplus cash to shareholders.

In my view, Record’s latest accounts and trading guidance make it clear that the stock’s 6.3% yield should be very safe for the next few years. Indeed, income from this stock could rise significantly if Record decides to start returning surplus cash to its shareholders.

I see Record as an interesting income buy with the potential to generate a lot of cash. The only risk is that cash returns and a lack of growth may gradually erode the value of the shares. That could be something to watch out for over the next few years.

The post Two small cap stocks with unmissable dividend yields? appeared first on The Twelfth Magpie.

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Roland Head 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.

For example, Laura Ashley’s pre-tax profit increased from £22.9m in the prior year to £25.8m in the 2016 financial year. This was aided by an increase in like-for-like (LFL) retail sales, which grew by 4.1%. Laura Ashley experienced growth across all categories, which highlights the diversity of its improved performance. This performance was also helped by a change in year-end, which made the 2016 financial year a 74-week period, versus a 53-week period from last year, although the LFL figures are based on a full 74-week comparison.

Online revenue was a major contributor to sales growth of around 33%. Online sales increased from £48.5m in the previous year to £73.5m in the 2016 financial year. This is likely to be a key catalyst for Laura Ashley’s future growth and the investment it has made in the digital space is proving to be highly worthwhile.

Laura Ashley has signed a new licence partner for Australia, which helps it to diversify its business. It’s also exploring expansion into new territories, which could further boost its profitability. This goes against the strategy employed by Tesco, which is in the process of selling off non-UK assets, while Sports Direct’s international expansion has been somewhat mixed.

Now for something completely different

In fact, Sports Direct is enduring a very difficult period at the present time. Its profitability has come under pressure due in part to challenges in international markets, while it faces political risk due to the alleged mistreatment of workers at its Shirebrook depot. This has caused its shares to trade on a low valuation, with Sports Direct having a price-to-earnings (P/E) ratio of only 11.2. This compares favourably to Tesco’s P/E ratio of 24.6, but is higher than Laura Ashley’s P/E ratio of 8.9.

Laura Ashley is forecast to grow its earnings by 19% in the current year, while Tesco is expected to report a rise in its bottom line of 38% in the next financial year. These growth rates put the two companies on price-to-earnings growth (PEG) ratios of 0.5, which indicate that their shares are undervalued. Sports Direct is due to report a fall in earnings of 25% this year, which means that its shares lack appeal in comparison.

Tesco is clearly in a recovery phase, but its new strategy is working well and resonates well with customers in terms of a simpler, more straightforward approach to pricing. Its decision to exit non-UK businesses may hurt its future performance due to the lack of growth forecast for the UK economy in 2017 (the Bank of England predicts the UK economy will grow by 0.8% next year), while Laura Ashley is becoming a more international business.

In this sense, Laura Ashley has greater appeal, but due to Tesco’s size, scale and financial strength, it remains a more enticing buy based on its risk/reward ratio.

The post Is this the best retailer after today’s results? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Tesco. 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.

Re-rating on the cards

This was partly as a result of a dip in revenue to £290m from £304m in the prior year, with the company’s international division in particular experiencing difficult trading conditions. And with Laura Ashley’s bottom line also being hurt by an exceptional charge of £1.3m relating to its licence partner in Australia being placed into voluntary administration, it is little wonder that its financial performance worsened versus the prior year.

With Laura Ashley’s share price having fallen by 12% in the last year, it now trades on a price to earnings (P/E) ratio of just 9.8. This indicates that an upward re-rating is very much on the cards and with the company continuing to offer long term profit growth potential, it could prove to be a sound buy.

Negative impact

Also in the news today is Africa-focused budget airline Fastjet (LSE: FJET). Its shares have been hurt of late by a disagreement with shareholder easyGroup, with an allegation that the airline is in breach of two clauses of a license agreement. Fastjet denies this and, unfortunately for its investors, the disagreement is being played out in public, which is having a negative impact on the company’s share price. In fact, it is down by 6% toda, which takes its fall in 2016 to 55%.

Of course, not all of this decline is due to the disagreement with easyGroup. Fastjet is experiencing challenging trading conditions which according to its latest trading update are lasting for longer than anticipated. And with the company’s CEO stepping down, there is added uncertainty at the present time. Therefore, it seems to be prudent to watch, rather than buy, Fastjet until there is an indication of a more stable near-term outlook for what could prove to be a highly profitable business.

Enticing income play

Meanwhile, shares in Rio Tinto (LSE: RIO) have also disappointed in recent months, being down by a third in the last year. Although they have reversed some of their decline as the price of iron ore has stabilised somewhat in recent weeks, the future for Rio Tinto and the wider iron ore industry is likely to be highly volatile and uncertain. This means that obtaining a sufficiently wide margin of safety before buying is imperative.

On this front, Rio Tinto appears to be relatively appealing. It trades on a price to earnings growth (PEG) ratio of just 0.5 and this indicates that it offers growth at a very reasonable price. And with Rio Tinto still yielding around 3.7% even after its decision to rebase its dividend, it continues to be a rather enticing income play for the long term. As such, it seems likely that its shares will reverse at least part of their decline from the last year.

The post Will Laura Ashley Holdings plc, Fastjet PLC And Rio Tinto plc’s Share Price Declines Continue? appeared first on The Twelfth Magpie.

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

Barclays

Barclays (LSE: BARC) is one of the cheapest bank stocks on the market right now. It currently trades at a forward P/E of 10.6 and has a price-to-book (P/B) ratio of just 0.62. A stock with a P/B ratio of less than 1.0 is generally regarded as undervalued, so with Barclays trading at less than two-thirds of its book value, it’s really cheap.

But we all know cheapness alone isn’t enough to justify buying a particular stock. There are a lot of reasons why Barclays is so cheap. Firstly, it’s earning a very low return on a significant proportion of its assets, particularly those relating to its investment bank and its non-core European business. Weak profitability at the bank is also not helped by the high cost of the financial penalties it has continued to pay. In addition, frequent management changes at the bank and the introduction of new regulation have created a great deal of uncertainty over its future direction.

Barclays’ third quarter earnings show how difficult it is to turn around its profitability, with earnings growth falling back into negative territory. Adjusted pre-tax profits fell 10%, to £1.6bn, offsetting much of the improvement earlier in the year. Overall, adjusted pre-tax profits grew by a mere 4% year-on-year to £5.2bn in the first nine months of 2015.

That said, city analysts are still optimistic for Barclays’ longer term prospects. They’re currently expecting underlying EPS to grow by 24% this year, to 21.5p. In 2016, earnings should grow by another 21%, to 25.9p. This indicates its shares trade at just 8.6 times its expected 2016 earnings.

Old Mutual

Shares in Old Mutual (LSE: OML) have recently been sold off, as investors seek to reduce exposure to slowing emerging markets. Slower economic growth in such markets and weaker emerging market currencies are expected to lower expectations of future earnings growth. But so far, earnings remain robust.

Gross sales rose 31% in the three months to 30 September 2015, despite the volatile macro-economic backdrop. Driving the improvement were higher management fee revenues and strong pension sales, which grew 71% following changes in UK pension rules.

It seems that Old Mutual’s diversification, both geographical and across different financial products, allows it to generate stable earnings even as some markets slow. Looking longer term, Old Mutual’s brand, business model and market position should mean it would deliver long term value for its shareholders. Trading at a forward P/E of just 10.1 and offering a prospective dividend yield of 4.7%, value investors should keep an eye on Old Mutual’s shares.

Laura Ashley

Fashion and homewares retailer Laura Ashley (LSE: ALY) similarly trades near its 52 week lows. The company may be long past its history of heady growth rates, but valuations seem to be too cheap for a company that is financially very healthy.

In the first half of its 2015 financial year, pre-tax profits fell by 1.2% to £8.4m. But declining licensing and franchise revenues because of weakness in Russia, Ukraine and Japan were largely to blame. The performance of the stores the group actually controls is doing much better, with like-for-like retail sales growth of 7% and online sales rising by 5.4%.

Laura Ashley is currently valued at 11.2 times its forward earnings estimate, and pays out a market-beating 6.7% dividend yield.

The post 3 Value Stocks Near 52-Week Lows: Barclays plc, Old Mutual plc & Laura Ashley Holdings plc appeared first on The Twelfth Magpie.

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Expansion in Asia

At 27.5p, the shares of Laura Ashley Holdings are almost 22% down from the 35p or so they achieved in May. The share-price movement seemed at least partly driven by the firm’s purchase of a property in Singapore for approximately £31.1 million, which cost the firm its cash balance and required a top-up loan to complete the financing.

The move into property surprised many investors, but Laura Ashley aims to establish an Asian headquarters and a strong commercial and operational presence in the region, where the directors see robust potential for growth.

With a price-to-earnings (P/E) ratio running at just over nine and a dividend yield of 7% the shares seem attractive, especially if further growth in Asia develops as the directors hope. There’s every reason to be optimistic, as the company already has around 296 franchised stores in 30 territories worldwide on top its British store estate and e-commerce operation.

Although trading was tough recently in some areas the directors expect a better performance during the second half of 2015. The Laura Ashley brand goes to market in the form of furniture, home accessories, decorating materials and fashion, and the directors reckon it appeals to many customers worldwide. I think the investment proposition here is interesting and Laura Ashley is well worth further research.

A quality outfit

International branded alcoholic drinks supplier Diageo has attractive cash-generating qualities thanks to the consumable nature of the product. The ‘defensive’ nature of the business keeps the firm’s shares changing hands at a premium. However, the share-price chart shows a gentle decline since the middle of 2013 as profits slipped due to challenging trading conditions in emerging markets and elsewhere.

At today’s 1869p, Diageo trades on a forward P/E rating of almost 21 for year to June 2016 and the forward dividend yield is 3.1%. City analysts following the firm expect earnings to grow by just 1% during the current trading year, which although slight is better than the single-digit reductions we’ve seen over the past two years. Perhaps the tide is turning with earnings. If so, any further slip in the share price could make the case for investing in this quality outfit compelling.

A rich valuation

Although at today’s 217p Vodafone’s shares are down around 15% from their recent peak, I find it hard to get past the mobile phone operator’s rich valuation. City analysts following the firm expect the company’s capital investment programme to pay off during year to March 2017 with a 21% uplift in earnings. However, the forward P/E runs at around 37 and the dividend yield is 5.3% with the payout only half covered by those improved earnings. There is surely a lot of future growth already priced in at this level, so I’m happy to watch from the sidelines.

The post Are We Seeing A Golden Opportunity With Diageo plc, Vodafone Group plc And Laura Ashley Holdings plc? appeared first on The Twelfth Magpie.

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Kevin Godbold holds shares in Laura Ashley Holdings. 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.

Quality advantage

Both Rio and Laura Ashley are above-average businesses that enjoy a competitive advantage, in my opinion.

Laura Ashley’s interim results, which were published on Wednesday, tend to confirm this. UK like-for-like retail sales rose by 7% compared to the same period last year, which is very good.

International sales are through franchised and licenced outlets, and profits are suffering because of Asian exchange rate factors. However, this doesn’t take away from Laura Ashley’s trailing operating margin of 8%, which is higher than Debenhams or Marks & Spencer, for example.

In Rio’s case, the firm’s ultra-low costs provide it with a strong competitive advantage. According to a recent presentation, the firm’s cash cost per tonne for producing iron ore has now dropped to $15.20. To put that in context, after extensive falls, iron ore is trading at around $55 per tonne.

Rio reported a group operating margin of 18% during the first half of the year. In my view, this business is almost guaranteed to remain one of the most dominant and profitable miners in the global market.

High yield

There’s no mistaking the appeal here. Rio offers a prospective yield of 6.1%, while Laura Ashley goes one better at 7.1%.

These aren’t unachievable payouts heading for a cut, either. Thanks to low costs and reductions in capital expenditure, Rio’s dividend seems likely to be covered by free cash flow and earnings per share this year.

Laura Ashley’s payout is only expected to be covered 1.25 times by earnings per share, but this company has a strong balance sheet and generates a lot of free cash flow.

Based on last year’s results and today’s interim results, I’d say that most, if not all, of Laura Ashley’s dividend is likely to be covered by free cash flow. When looking at the figures yourself, remember that the second half of the year (which includes Christmas) is typically much stronger than the first half.

The price is right

Even the best companies are only a buy if the price is right.

Rio currently trades on a forecast P/E of 14.5 for 2015, falling to about 14.0 in 2016. That’s not outstandingly cheap.

However, I think the valuation risk is offset by Rio’s high yield and strong competitive position. As one of the largest and lowest-cost iron ore producers in the world, this business will be one of the survivors in the sector.

At Laura Ashley, a forecast valuation of 11 times earnings looks reasonable. The Laura Ashley brand appears to be in strong demand at the moment in the UK and in Asia. Although no earnings per share growth is currently forecast for next year, I suspect this will change if exchange rate headwinds ease or if UK sales growth continues at the current rate.

I would be happy to buy shares in both Rio Tinto and Laura Ashley at today’s price.

The post 3 Reasons Why I’d Buy Rio Tinto plc and Laura Ashley Holdings plc Today appeared first on The Twelfth Magpie.

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Roland Head owns shares of Rio Tinto. 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.