Should You Bank These 3 Winners?

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LONDON -- If you're reading this, you're likely familiar with the following three shares:

  • Associated British Foods (ISE: ABF.L)
  • Rolls-Royce (ISE: RR.L)
  • Unilever (ISE: ULVR.L)

Their common feature? They're all blue chips with share prices flirting with all-time highs.

Here are the details compared to the FTSE 100:

Company 

All-Time High

Recent Price/Level

Gain Required to Reach All-Time High

Associated British Food

1,295 pence

1,294 pence

<0.1%

Rolls-Royce

890 pence

861 pence

3%

Unilever

2,334 pence

2,274 pence

3%

FTSE 100

6,930

5,813

19%


I'm sure long-term shareholders of all three companies will be chuffed with their gains right now. But as always with shares, prices can race ahead of reality, and sometimes it can pay to bank your winners while the going is good.

Let's have a quick look at the trio to see if any profits need to be taken.

Associated British Food
The sugar and retail conglomerate has enjoyed a good recession, with sales up 63% and adjusted operating profits up 48% between 2007 and 2011. Progress during 2012 has been encouraging, too, with strong sugar prices and good sales at Primark helping year-to-date revenue advance 11%. The performance has prompted ABF to expect "substantial growth" in profit for the current year.

Brokers translate this optimism into earnings of 87 pence per share, up 18% on 2011, which equates to a price-to-earnings ratio of 15. In comparison, statistics on Bloomberg indicate ABF's forecast P/E reaching a five-year high of 17.5 during 2007.

Although the ABF's current P/E rating is towards the top end of its range, the firm's upbeat comments suggest to me the share price could be justified.

Rolls-Royce
The aerospace group has performed well during the downturn, with sales up 50% and adjusted earnings per share up 43% between 2007 and 2011. Progress has been made during 2012, too, with further sales of Trent engines helping first-half earnings per share advance 11%. The performance prompted Rolls to expect "good growth" in underlying revenue and profit for the current year.

Brokers translate this confidence into earnings of 58 pence per share, up 19% over 2011, which equates to a P/E of 15. For perspective, statistics on Bloomberg indicate Rolls' forecast P/E reaching a five-year high of almost 16 during 2011.

Similar to ABF, although the Rolls' current P/E rating is near the top end of its range, the firm's upbeat comments suggest to me the share price could be justified.

Unilever
The consumer goods powerhouse continued to progress during the banking crash, with sales up 16% and pre-tax profits up 18% between 2007 and 2011. This year's efforts have been pleasing, too, with greater sales to emerging markets supporting a 4% profit gain during the first half. The achievement prompted Unilever to expect a "modest improvement" in its core operating margin for the full year.

Brokers translate this confidence into earnings of about 1.56 euros per share, up 10% on 2011, which equates to a P/E of 19. In comparison, statistics on Bloomberg indicate Unilever's forecast P/E reaching a five-year high of nearly 20 during 2007.

With Unilever's current P/E rating at the top end of its range, I'm not 100% convinced the firm's progress this year justifies the share price. If I were a holder, I might bank some profits.

More all-time highs
One long-term investor whose shares have also done well of late is Neil Woodford, the head of investments at Invesco Perpetual and one of the smartest blue-chip investors in the City. In fact, on a dividend-reinvested basis over the 15 years to Dec. 31, 2011, Woodford has delivered a return of 347%, versus the FTSE All-Share's modest 42% performance. Helping to drive that performance has been a substantial position in British American Tobacco, which has been hitting fresh all-time highs throughout 2012.

Woodford's other favorite holdings -- and the investing logic behind them -- are profiled in "8 Large-Cap Income Shares Held By Britain's Super Investor," a special report that is exclusive to The Motley Fool. This report is free and can be delivered to your inbox in seconds. However, all Fool reports are available for a limited time only.

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Further Motley Fool investment opportunities:

The article Should You Bank These 3 Winners? originally appeared on Fool.com.

Maynard does not own any of the shares mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Unilever. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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