In recent days I’ve shone a light on ‘Big Tobacco’ and the likes of Imperial Brands (LSE: IMB), noting the increasing pressure their vaping businesses are facing.
A raft of US states have been taking steps to curb the sale and use of vape products on health concerns. Last week, Massachusetts took the nuclear option by stopping the sale of all vape products for a minimum of four months. Lawmakers in India stole a march on their North American counterparts by banning the trade and manufacture of these next-gen products the week before.
The pressure is on and last week Imperial Brands issued a profit warning after advising that trading conditions in the gigantic US market had “deteriorated considerably” in the last quarter. Such products might only account for a fraction of total revenues right now (less than 10% for this particular FTSE 100 firm), but they’re an essential growth market for these companies, whose traditional combustible products are already in a state of terminal decline.
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Right now Imperial Brands carries a monster 10% dividend yield and trades on a bargain-basement forward price-to-earnings (P/E) ratio of 7.7 times, but I’m still not buying.
Next please
Headlines haven’t been particularly encouraging for Next (LSE: NXT), either. Leading retail indicators have been pretty chilling as consumers are having Brexit jitters, and the most recent Confederation of British Industry (CBI) numbers have given retailers fresh cause for worry.
According to the CBI last week, total UK retail sales fell for a fifth month on the spin in September, at -16 versus -49 last month. Optimists would point to the fact that this is better than August’s multi-year lows, but I say a fall is still a fall. Besides, fresh credit card lending data from UK Finance – numbers that show activity has dropped to its lowest level since 2015 – underlines the pressure that retailers are facing.
I warned recently of the Brexit-related dangers that Next faces. Needless to say this week’s data has soured my opinion of the blue chip even further. I’m happy to keep avoiding the business, despite the fact it trades on just 12.6 times forward earnings.
A better buy
Recent news on the state of the broader housing market hasn’t been brilliant, but for builders like Barratt Developments (LSE: BDEV) there’s been some good news.
Take mortgage approval numbers last week from UK Finance, for example. For the purpose of home purchase, these were up 3.2% in August, reflecting the ongoing support of the government’s Help to Buy purchase scheme and the mortgage rate wars being waged among Britain’s lenders.
This comes after Barratt declared recently that its forward sales stood at a healthy 12,911 units at the beginning of September, up from 12,648 a year earlier.
You can forget about Brexit – because of the country’s shortage of new homes, on top of those generous lending conditions I’ve mentioned, Barratt continues to thrive. I already own shares of this particular builder and because of its huge 7.4% dividend yield and low forward P/E ratio of 8.7 times, I’m thinking of buying some more.
