A fall in the FTSE today could see the index’s worst start to a year since the dotcom bubble began to deflate in 2000. Despite all the doom and gloom, however, this week’s share tip roundup from Trustnet Direct has a positive feel, with twice as many “buy” recommendations as “sell” ones.
Tuesday
Randgold Resources – Hold
Questor said investors should hang on to Randgold Resources. Investors flocked to precious metals on Monday as they sought out safe havens amid the market carnage and Randgold was one of the few equities to come out of the session shining. That said, gold prices remain well below the highs of $1,900/oz seen less than five years ago, so the short-term situation for the miner remains rocky. It is, however, increasing production while capital expenditure will tail off over the next five years and many costs are met in falling emerging market currencies against a commodity that is priced in appreciating US dollars. This means the stock should come out of the storm looking relatively unscathed – it’s not a cheap investment, but it remains a good place to get exposure to gold.
Cairn – Sell
Tempus said investors should avoid Cairn for now, despite the fact it has many factors working in its favour. The stock enjoys one big advantage over its peers in the oil and gas exploration sector – it is not currently extracting oil, so doesn’t need to sell the commodities at distressed prices. It is well capitalised and should be able to bring a number of promising assets off the coast of west Africa on stream when the time is right, probably around the turn of the decade. These fields are said to be profitable above $40/barrel and while calling a price that far out is always going to be difficult, it seems likely that this level will have been met. Projects in the interim also look promising and there’s scope that the tax dispute in India could see a significant return of funds at some point. However, the column said it is too early to get back into this sector, even if it remains one of the most attractive picks out there.
Wednesday
Sports Direct – Sell
Sell Sports Direct, was the message from Questor on Tuesday. The company is once again being scrutinised for lax corporate governance and the column highlighted three questions that it feels need answering before any investor ventures in. These include short-term loans made by Mike Ashley to the company, the validity of its investments in rivals and questions over its expansion plans. The column notes that Ashley’s unique style of management was overlooked by many investors as shares rose, but as the share price continues to retreat from the highs of April 2014, it seems scrutiny is likely to increase.
Performance of stock over 2yrs
Source: FE Analytics
Next – Buy
Tempus said the poor results released by Next on Tuesday may present a long-term buying opportunity – this may seem like a bold call, but the column said the pre-Christmas numbers will look quite respectable compared with its competition. Next is maintaining its stance of not discounting before Boxing Day and with a cautious stance on further expansion, it has the flexibility to scale operations to suit the market, rather than being tied into commitments to investors. There’s an attractive 5.8 per cent dividend yield on the table and the stock trades at a 16 times multiple.
Thursday
Ladbrokes – Buy
Tempus said investors should buy Ladbrokes for the long term. There are still questions being asked as to what a merged Ladbrokes and Coral will look like once the competition authorities have had their say, but the combined entities will deliver significant synergies, as well as a 45 per cent share of high street transactions. Brokers are starting to throw their supportive comments into the ring, too, while the column also believes that full year results due next month could include some positive surprises. There is concern about the level of debt being assumed to complete the acquisition, but providing the regulators don’t cause too much upset, the new entity should be well placed to tackle competitors.
Johnson Services Group – Hold
Questor said investors should hang on to Johnson Services Group. The workwear and linen laundry firm has made a significant turnaround of late and shareholders are reaping the benefits. The rebound is also being aided by the recovering UK economy, plus some astute acquisitions. Shares collapsed at the end of 2007 when the company became saddled with debt as a result of rapid expansion, but after a five-year period of cost cutting and reorganisation, things seem to be looking more stable.
Friday
BAE Systems – Buy
Questor said investors should buy BAE Systems. This is the world’s second largest defence company and it receives 40 per cent of revenues from the US. Pressure on military spending in the UK is easing, meaning the outlook for sales across the Atlantic remains positive. The UK is also going through a major military replacement programme right now, while aspects of the business have been de-risked, including slowing production of the Typhoon fighter. With a 4.1 per cent dividend yield and trading on a multiple of 13.4, the valuation looks keen, especially given the positive outlook.
easyJet – Buy
Buy easyJet, said Tempus earlier this morning. The airline is about to try and tap bond markets for the first time and although passenger growth may look anaemic compared with rival Ryanair, it has to be said that at least easyJet is chasing profitable growth. Shares have been marked back recently due to terrorism fears – the company is more exposed to markets in France and the Middle East than its rivals – but its multiple of just 11 times means it looks rather cheap. The column believes this weakness presents a buying opportunity.
