Motley Fool: Spot the Rooney in your portfolio

As England crashed out of the World Cup this week, another major tournament came and went with the media obsessing over Wayne Rooney.

Wayne Rooney
Wayne Rooney

And especially after a limp opening performance against Italy recently, it’s easy to see why serious questions are being asked. Why has this once-mighty force lost his edge? Has he fallen into permanent decline? Should we continue to invest our hopes in him?

I have been asking exactly the same questions about retail supermarket giant Tesco.

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Tesco has plenty in common with England’s struggling forward. It dominated the opposition for a decade, using power and pace to crush lesser rivals such as Asda and J Sainsbury.

But lately its form has dipped, the magic has gone. Tesco’s year-on-year sales figures have fallen 3.7 per cent.

Markets seriously doubt whether current management, led by chief executive Philip Clarke, has the right tactics and strategy to turn things round.

More investors are dropping it from their portfolios.

Shell Isn’t Sure, Either

Tesco isn’t the only stock displaying Rooney-esque tendencies. Anglo-Dutch oil major Royal Dutch Shell has also been off the pace.

First quarter earnings of $4.5bn were sharply down from $8bn one year earlier.

Broker UBS recently complained the stock was losing “near-term momentum”, just as Rooney did as he approached the penalty box against Italy...

Shell once looked like a world beater.

Lately, it has been scaling back its ambitions, pulling out of shale gas, selling its stake in the Brazilian deepwater project BC-10, and turning down major projects in Australia and Louisiana.

Instead of rampaging up and down the line, it prefers to play the safe, square ball.

They’re Still Big Earners

But Rooney, Tesco and Shell shouldn’t be written off.

They are all major global brands. They also remain highly cash-generative, despite their slump in status.

Rooney earns an astonishing £300,000 a week. Tesco posted a £2.3bn pre-tax group profit last year. Shell made a £33bn profit. Rooney won’t share his fortune with you, but Tesco will pay you a generous 5.1 per cent a year, while Shell currently gives you 4.3 per cent.

These are star-studded yields!

Despite their troubles, these three institutions have turnaround potential.

Tesco has to see off competition from the Germans, in the shape of nippy discounters Aldi and Lidl.

But if it cracks China, or UK sales remain tight at the back, the confidence could flow again.

At 9.1 times earnings, it’s an interesting bet.

Van The Man

Shell can also discover its shooting boots.

New chief executive Ben van Beurden has raised spirits with his $15bn divestment programme and campaign of targeted cost savings.

So far, the share price has sidestepped a rash challenge from Russia and the Ukraine to rise 15 per cent in the last six months.

In the longer run, investors could score big.

So, take a look at your own portfolio. The chances are you will find one or two ‘Wayne Rooneys’ in there.

The tough question is whether to hang on, in the hope they will recover their form, or look for something younger, fresher and faster...

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