Markets continued to tumble this week after speculation mounted the Federal Reserve could raise interest rates as early as next month. This wasn’t helped by speculation that terrorists may have caused the crash of an Egyptian airliner, which sent stocks related to tourism tumbling.
However, shares obviously become more attractive when sentiment sends prices down, which may explain why there are twice as many “buy” recommendations as negative ones in this week’s roundup from low-cost platform Trustnet Direct.
Tuesday
Nex – Sell
Tempus kicked off this week’s roundup by recommending investors avoid Nex, the new name for ICAP. The company is going through a major transformation as it hives off its voice-broking business to Tullet Prebon and although the column conceded that the deal is a good one for both parties, some fundamental limitations remain. The number of banks using the service is contracting, as is the general appetite for risk, leaving the shares difficult to value. As the column said, at this level they look expensive.
Lonmin – Buy
Questor said investors should buy Lonmin. Shares in the South African miner soared on Monday off the back of results that showed losses narrowed after the recent rights issue. The company still needs to manage its size so it can account for lower commodity prices, but with platinum up 21 per cent year-to-date, if this can be sustained in the second half of the year, turnaround plans should receive another boost. There are still wage negotiations to tackle, but the weaker rand is also helping stretch investment in the business. Short term, the column said there is a lot of potential.
Wednesday
Premier Foods – Sell
Questor recommended selling out of Premier Foods, saying it has yet to justify turning down the bid approach and that so long as it remains laden with debt, equity investors will continue to struggle. The question as to whether investors would have been better off with 65p cash versus shares that are now trading at around 40p is pertinent – the 19.9 per cent stake taken by Nissin Foods demands the company remains independent. On top of this, the twin challenges of food price deflation and a backlash against foods with a high sugar content make for a challenging landscape.
Land Securities – Buy
Buy Land Securities, said Tempus. Earnings from the commercial property firm were well received by the market on Tuesday, despite all the uncertainty flying around with the Brexit campaign. News the company had made a series of astute disposals was applauded by investors, even though this will have an adverse effect on rental values going forward. An increasing dividend also helped to bolster sentiment in the stock and the column is supportive of the defensive strategy that has been adopted. Overexposure to a toppy London property market is certainly something to be avoided.
Thursday
HICL Infrastructure – Hold
Yesterday Questor said that investors should hang on to HICL Infrastructure. Wednesday’s results were boring and straightforward, coming with a commitment to link dividend payment increases to inflation through to 2018. This appears to be a predictable company that buys completed commercial premises such as police stations and hospitals, then rents them back on long-term, often government-backed, contracts. The column noted asset values have been rising as debt costs have fallen – this situation could soon revert, but the 4.7 per cent yield makes the stock attractive.
Marstons – Buy
Tempus tipped Marstons as a “Buy”. The shares have been marked back recently, although this doesn’t reflect the underlying performance of the stock. The company is making good progress in upgrading its existing offerings, making more money from customers in the process. On top of this, expansion is astute, with the pub group avoiding so-called hot spots in town centres where competition is tough. There is a debt burden, but the company is comfortably outperforming its peers and the stock offers a promising 4.8 per cent yield.
Performance of stock year-to-date
Source: FE Analytics
Friday
National Grid – Hold
Earlier this morning, Questor recommended hanging on to National Grid. The idea that US interest rates could be on the rise soon was seen as being responsible for much of the stock’s downside pressure yesterday, comprehensively outweighing the solid results which offered investors a 5 per cent increase in the dividend. The column noted the company’s consistency in paying inflation-linked dividends has grown to such an extent that it is seen as a bond-like investment by many, hence the share price reaction. It is not time to walk away yet, but the stock is highly rated for a utility and the growth prospects over the next decade are certainly limited.
Booker – Buy
Tempus recommended buying Booker in the final share-tip of the week. The cash and carry company may be facing a few headwinds – limits on tobacco advertising and the ongoing price war among the supermarkets being prime examples – but it continues to reliably hand cash back to investors and now yields 4.2 per cent. The recent acquisition of Londis and Budgens has served to push the valuation of this stock out to a multiple of 22 times, but while this may seem a bit punchy, the column feels this is justified by the company’s recent performance.
