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Apple Inc. (AAPL), InterContinental Hotels Group PLC (ADR) (IHG): Should I Buy These 5 Shares?

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LONDON — I’ve been popping stocks into my shopping basket in recent weeks, and it’s about time I took one or two to the checkout. Here are five stocks I’ve found tempting, so should I buy any of them?

Going Continental
InterContinental Hotels Group PLC (ADR) (IHG)InterContinental Hotels Group PLC (ADR) (NYSE:IHG) has enjoyed a barnstorming five years, growing 160%. And it just keeps rising, up 15% in the past three months alone. This U.K.-listed global hotel chain group is a play on the recovery, particularly in the U.S., where it earns 45% of its revenues. When business starts building again and travelers get traveling, InterContinental Hotels Group PLC (ADR) (NYSE:IHG)’s room occupancy rates will rise (and they’re pretty full already). Every year, 153 millionpeople spend a night at one of its nine brands, which include Holiday Inn, Crowne Plaza, and InterContinental. Yet the group doesn’t own the physical hotels, having sold most of them and signed long-term management contracts to lease them back from the new owners. This leaves InterContinental Hotels Group PLC (ADR) (NYSE:IHG) light on assets and heavy on profit. Full-year 2012 results showed revenue rising 4% to 1.83 billion pounds and operating profit up 10% to 614 million pounds. The dividend was hiked 16%. It now yields 3.3%, covered a meaty 2.2 times. InterContinental Hotels Group PLC (ADR) (NYSE:IHG)’s exposure to the U.S. and China has helped it survive the slowdown in Europe, but trading at 21 times earnings, it does looks expensive. With forecast earnings-per-share growth of 11% this year and 9% next year, there is plenty of upside, but you will pay a price for it. This is more of a hold than a buy.

Losing my Compass
Contract caterer Compass Group plc (LON:CPG) is another barnstormer, also up 160% over five years, and up 14% over three months. The company, which provides food and support services to businesses, schools, hospitals, universities, and sports facilities, employs 500,000 people across 50 countries and serves 4 million meals a year. As if that weren’t enough, it has diversified into reception and office services, desk cleaning, and routine maintenance. Given all the offices in all the world, that gives it an almost unlimited target market. Compass trades at 8.30 pounds. Bank of America has just lifted its target price to 9.25 pounds and nailed it as a buy. Forecast EPS growth looks positive at 8% in the year to September 2013 and 11% over the 12 months after that. As with InterContinental Hotels Group PLC (ADR) (NYSE:IHG), recent successes make it expensive: Compass trades at nearly 20 times earnings. The dividend is relatively disappointing, yielding just 2.6%. This could be a great buy in the next correction.

Pick up a Pearson?
Pearson PLC (ADR) (NYSE:PSO) hasn’t done so well lately, with management warning of tough trading conditions. Pearson, which owns the Financial Times, publisher Penguin, and a thriving educational division, currently trades at 11.76 pounds, down 3% over the past year. Yet its profit held up in 2012, with full-year sales rising 5% and adjusted operating profit up 1% to 936 million pounds. International education revenue rose 13%, including a 25% rise in emerging markets, as yet another FTSE 100 favorite finds the going less sticky in the emerging world. Pearson is one publisher that really gets digital. The FT‘s digital readership is growing strongly, with subscriptions up 18% to almost 316,000, while ebooks now account for 17% of Penguin’s sales. EPS growth looks shaky this year with a forecast drop of 5%, rebounding to 13% growth in 2014. You can buy it at 13.2 times earnings and pocket a 3.8% dividend that’s covered 1.9 times and was recently hiked a progressive 7%. Brokers have been downgrading Pearson since its recent results, with many now underweight. If Pearson’s massive restructuring plan does bear fruit, patient long-term investors could reap the rewards. Now might be a nice entry point.

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