Wednesday tips round-up: Pearson, Wm Morrison, Chemring
Given that Pearson was trading at more than 900p as recently as May and that the company has produced two upbeat trading statements, the shares look cheap.
But there is little faith in the stock market that the operational performance can continue. Every 5 cents the US dollar weakens against the pound also lops 1p off earnings per share, but Pearson's dividend yield and position as one of the media sector's more defensive stocks give reason to hold on says the Times.
Wm Morrison shares trade at 19 times 2009 earnings - against 14 times for Tesco - and appear to have largely priced in near-term recovery. However, on the assumption that Marc Bolland, its new chief executive, has more levers to pull, Morrisons, with only £700m of net debt and massive property backing, is worth holding says the Times.
The wind is in Morrison's sails and analysts yesterday upgraded their profit forecasts. As Citi, the broker, said: "Morrison looks like a safe ship in these troubled times for consumer stocks." The shares closed yesterday up more than 10p but, despite this, they are worth picking up in difficult markets, says the Telegraph.
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This year is set to be a crucial one for GW Pharmaceuticals. In Europe, GW should publish the results of a second Phase III trial into the use of Sativex to treat pain suffered by patients with MS by Easter. Talk of price earnings ratios and dividend yields are equally pointless. GW is still making a loss and could disappear in a puff of smoke if Sativex bombs, but it is worth the risk says the Telegraph.
The "war on terror" has been good for defence manufacturers such as Chemring and investors have been rewarded with a sevenfold increase in the shares in the past five years. Chemring is valued on about 12.75 times earnings, roughly in line with the sector. It is not cheap, but the shares are worth holding. The order book is strong and the company is due to sign a number of five-year agreements with the US, says the FT.
Logistics software group Kewill's attraction is as an each-way bet. Either it will deliver on forecast earnings growth of 20 per cent in each of the next two years, and the shares, at 12 times 2008 forecasts, will be rerated, or the likes of SAP and Oracle will swoop. Buy at 77p says the Times.
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