Although this week has been dominated by what the Federal Reserve was going to do with interest rates, it shouldn’t distract people from the fact that how well a stock does depends overwhelmingly on what is happening with the underlying business.
With this in mind, we round-up the week’s insight into individual stocks and shares from low-cost platform Trustnet Direct.
Tuesday
Abcam – Buy
On Tuesday, Tempus recommended investors buy Abcam, which makes and sells blood proteins for use in medical research. Describing it as “the Apple of antibodies", Tempus said it has big ambitions, aiming to build market share through organic growth and acquisition. Although the share price now reflects this, trading at a 30 times multiple, it is seen as the market leader and the column said the strong strategy that has been laid out makes further growth realistic.
Falkland Oil and Gas – Sell
Questor said investors should steer clear of Falkland Oil and Gas. The company’s share price is rising ahead of news of a drilling project in the south Atlantic, but the column warned that investments in this field are highly speculative. Drilling results that were expected earlier in the year are overdue and past experience has shown the hunt for hydrocarbons in the area around the Falklands tends to disappoint. It concluded this is about as risky as investing gets.
Wednesday
Vodafone – Buy
Questor tipped Vodafone as a long-term buy on Wednesday. EC meddling in the mobile phone industry’s swathe of M&A news may not bode well for the telecoms giant as it could put a block on the asset swap it had been working on with Liberty Global. Lacklustre consumer confidence has also been taking a toll on companies operating on the continent, but with Vodafone now reaping the benefits of its £19bn investment plan, it may be at a turning point. Although dividend cover may look tight, free cash will improve as the investment programme comes to an end and even with the shares trading on 45 times earnings, the column is happy to hold on for now.
Kingfisher – Sell
Tempus said investors should avoid Kingfisher. The owner of B&Q and Screwfix reported interims on Tuesday and the reception from the market was decidedly tepid. Sales at the more traditional consumer end of the scale were rather more muted – B&Q posted an increase of just 0.7 per cent, but it was the poor performance of the company’s French operation that took a toll on the stock, after weak consumer confidence and currency moves left sales across the Channel down by 4.8 per cent.
The company’s decision to bolster its ties with tradesmen saw some impressive results – the Screwfix side of the operation saw like-for-like sales rise by 16.5 per cent and the plan is to add another 200 stores to the list over the next few years, focusing on areas with higher population densities.
Tempus admitted the group is obviously doing something right if it can increase sales over a summer that didn’t lend itself to buying outdoor equipment. However, it added there is not enough detail in play about the effects of a change programme that has been implemented by the company and with the share price having already come up a long way, now doesn’t seem to be a good time to get on board.
Thursday
Imagination Technologies – Hold
Questor said investors should hang on to Imagination Technologies. The microchip designer saw its shares tumble 8 per cent after it warned the slowdown in China would hit sales of mobile phones and lead to a first-half loss.
The company’s biggest customer is Apple and good news earlier in the week around sales of the new iPhone 6S propelled the share price higher; however, these gains have now been erased.
Although the stock’s valuation has dropped by more than 60 per cent since early 2012, Questor said the long term outlook looks good. The chips it designs are required in the next generation of mobile phones and it could be a bid target in the coming years.
Performance of stock since start of 2012
Source: FE Analytics
JD Sports Fashion – Sell
Take profits from JD Sports Fashion, was the advice from Tempus yesterday. The company reported some solid interims on Wednesday but the numbers came with a note of caution from the chief executive that this pace of growth can’t continue forever. The share price has tripled since the start of 2014, but it still trades on a reasonable 18 times multiple, reflecting the prospects for further growth. It may be the leader in its field, but the column said it is fully valued.
Friday
Smart Metering Systems – Hold
Questor said investors in Smart Metering Systems should stay put. The provider of next generation electricity metering equipment is enjoying a buoyant ride thanks to government targets demanding that smart meters are rolled out. The model is simple – the company buys and installs the kit, then collects a recurring fee for use, which repays the capital cost. However, this simplicity has been jumped upon, leaving the shares trading at a multiple of 23 times. While this looks a bit toppy, the column concluded any dips may present a buying opportunity.
Premier Farnell – Sell
Avoid Premier Farnell, warned Tempus this morning. The column sees the company as a good barometer of global economic trends but finds itself vulnerable to small variations in revenues. An attractive dividend yield had been propping up the share price but this has now been cut, punishing the stock accordingly. Now trading on 10 times earnings and delivering a 5 per cent yield, these shares may look attractive, but the column believes that buying now still represents something of a punt.
