4 ‘Overvalued’ Shares? Barclays PLC, Glencore PLC, Tesco PLC And Tullow Oil plc

Do high P/Es make these 4 shares ‘overvalued’? Barclays PLC (LON:BARC) (LSE:BARC.L), Glencore PLC (LON:GLEN) (LSE:GLEN.L), Tesco PLC (LON:TSCO) (LSE:TSCO.L) and Tullow Oil plc (LON:TLW) (LSE:TLW.L)

Glencore PLC
Glencore PLC

Shares with high P/Es have never really put me off as an investor. I can understand why a lower P/E might be better due to the potential for a rerating. But I also think a high P/E can be justified by EPS growth potential. Here are 4 shares I’ve found with relatively high P/Es, but what I believe are good growth outlooks.

Barclays PLC (LON:BARC) (LSE:BARC.L) has a P/E of 17.8 using 2016’s EPS. In my view, this can be justified by investors because of the double-digit EPS growth forecast in FY2017 and FY2018. Barclays has a strategy which I believe could be good news for its share price. I like its continued focus on financial strength and in reorganising the bank in order to become more financially flexible in the long run. I also feel the banking sector could be undervalued, which may lift the Barclays share price in the long term.

Glencore PLC (LON:GLEN) (LSE:GLEN.L) made a pre-tax loss last year. However, in FY2017 it is forecast to register a profit. Therefore, its P/E on a prospective basis is 13.2. In my opinion, this could represent good value for money. I understand commodity prices are volatile and unstable, therefore a fall could lie ahead which may affect Glencore’s profitability. But I feel Glencore has potential to perform well on a relative basis as its restructuring and reorganisation carries on. I think it could now cope better with a commodity downturn than it could have done in previous years.

Tesco PLC (LON:TSCO) (LSE:TSCO.L) shares have dropped 7% in the last 3 months, but they have a P/E of 54.7 using FY2016’s EPS. Tesco’s financial year for 2017 ended at the end of February, so its P/E is forecast to fall to 24.8 using FY2017’s prospective figure. However, because of forecast double-digit gains in EPS in FY2018 and FY2019, Tesco’s prospective P/E seems much more reasonable in my view. I feel it has a good strategy through which to become more efficient and I believe possible synergies from the Booker acquisition could improve its share price on a relative basis.

Tullow Oil plc (LON:TLW) (LSE:TLW.L) announced a rights issue last week. I think this could help the company’s share price in the long run as it may lead to lower leverage and balance sheet risk. Tullow Oil was loss-making last year, but is forecast to return to a positive EPS in FY2017. Based on forecasts for FY2017 it has a P/E of 14.6. Given the uncertainty within the oil sector at the moment, some investors may see this valuation as relatively high. But I think with increasing production from TEN coming onstream and Tullow Oil’s potential for lower debt levels, its share price could have long term investment appeal.







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