Are These FTSE 100 Shares a Buy?

LONDON -- I have recently been evaluating the investment cases for a multitude of FTSE 100 companies. Although Britain's foremost share index has risen 6.3% so far in 2013, I believe many London-listed stocks still have much further to run, while others are overdue for a correction. So how do the following five stocks weigh up?

Weir Group
I believe valve and pump manufacturer Weir Group is currently a risky pick for investors due to the potential for severe near-term difficulties in its crucial mining and oil markets.

City forecasters expect earnings per share to nudge just 3% higher in 2013 before picking up speed in 2014, when growth of 9% is anticipated. Weir currently changes hands on a price-to-earnings rating of 14.2 for this year and 13 next, providing a discount to a forward earnings multiple of 15.1 for the wider industrial-engineering space.

However, the firm's 2012 results released in February painted a worrying picture for future demand prospects. Lower order input from original equipment manufacturers during the latter half of the year has cast a pall over future revenue growth, with orders dropping 2% in 2012 to 2.4 billion pounds, or 9% on a like-for-like basis.

Meanwhile, a below-par dividend yield further undermines the investment case, with projected yields of just 1.9% for 2013 and 2.1% for 2014, well below the FTSE 100 average of 3.2%. Although the dividend picked up 15.2% last year to 38 pence, falling demand could undermine future payout growth.

Tate & Lyle
I reckon that Tate & Lyle, although operating in the traditionally defensive food-producers sector, is a dicey pick for investors due to galloping competition in its key sweetener markets, with rivals in emerging markets in particular ratcheting up activity.

The company confirmed in last month's trading statement that sucralose volumes are set to fall from the previous year. With competitors such as JK Sucralose of China, the world's second-largest producer, set to ramp up capacity considerably over the next five years, Tate & Lyle will experience worsening revenue headwinds.

Earnings per share are expected to dip 3% in 2013 -- results for which are due on May 30 -- according to broker estimates. This is expected to rise again in the medium term, however, with growth of 8% expected both this year and next.

The sugar producer currently trades on a P/E rating of 13.8 for 2014 and 12.7 for 2015 and 2015, representing a premium to a forward readout of 11.7 for the entire sector and further reducing the firm's investment appeal.

Compass Group
I am calling for shares in Compass Group to punch fresh all-time highs in the near future -- the firm has struck record peaks above 852 pence in recent days -- as exciting activity in North America and emerging markets boosts investor interest.

The food and support services play announced in March that rising demand in these territories helped drive groupwide organic growth 5% higher in the September-to-March period, offsetting enduring weakness in Europe and Japan. Turnover in North America advanced 8.5% during the period, while Compass also noted excellent strength in Australia, Brazil, and Turkey and rising momentum in China, Russia, and India. The company spent 80 million pounds on mergers and acquisitions in the first half, and I am tipping additional purchases to supplement decent organic growth.

City estimates expect earnings per share to stride 10% higher in the year ending September 2013 before accelerating 11% in the following 12-month period. Compass currently trades on respective P/E ratings of 17.5 and 15.7 for these years, which I believe is justified, given the quality of its businesses and vast operations in strong and promising geographies.

Serco Group
As with Compass, I am convinced that exploding activity in new regions should boost Serco Group moving forward. The firm announced in March that turnover from ongoing activities increased 8.1% to 4.8 billion pounds in 2012, in turn pushing adjusted pre-tax profit 6.1% higher to 278.1 million pounds.

Serco's "business process outsourcing" division punched a 40% increase in total turnover. Elsewhere, organic growth in Asia, the Middle East, Africa, and Australia rose 22% last year, with total revenue rising 31% from 2011. These geographies now account for almost a fifth of group revenue.

Serco has an excellent record of punching earnings growth even in times of macroeconomic pressure, and City analysts expect earnings per share to nudge 2% higher in 2013 before accelerating to 10% next year. The firm currently trades on respective P/E multiples of 14.1 and 12.7 for these years, which compares favorably to a forward reading of 21.6 for the whole support-services sector.

Serco's commitment to significantly boost dividend payments should also underpin investor interest, even if projected yields of 1.9% for 2013 and 2.1% for 2014 currently remain below the average for the U.K.'s 100 largest listed companies. The company hiked the dividend 20% to 10.1 pence last year, and analysts expect this to rise to 11.6 pence this year and 14.2 next.

Reed Elsevier
I reckon that Reed Elsevier's transformation plan should continue to drive sales higher in coming years, while a generous commitment to shareholder payouts should boost interest among income investors.

The group's underlying revenue rose 4% last year to 6.1 billion pounds, which pushed underlying adjusted operating profit 6% higher to 1.7 billion pounds. Reed Elsevier plans to turbocharge revenue through its electronic and face-to-face channels, and it saw 80% of total turnover generated through these methods last year.

Earnings per share are expected to rise 6% in 2013 and 8% in 2014, according to City estimates. The firm currently changes hands on respective P/E ratings of 14.2 and 13.2 for these years, which I believe provides decent value, particularly considering its commitment to returning cash to investors.

Reed Elsevier increased its dividend 7% in 2012 to 23 pence, and forecasters expect this to rise to 24.5 pence in 2013 and 26.2 pence in 2014, providing decent yields of 3.3% and 3.5%, respectively. In addition, the company has affirmed its commitment to return 400 million pounds to stockholders this year through share buybacks. This follows the return of some 250 million pounds in 2012.

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The article Are These FTSE 100 Shares a Buy? originally appeared on Fool.com.

Fool contributor Royston Wild has no position in any stocks mentioned. The Motley Fool recommends Weir Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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