The vote to leave the EU has sent financial stocks and housebuilders tumbling, while companies that derive the majority of their earnings from overseas have rocketed on the falling pound. Trustnet Direct’s roundup of share-tip recommendations featured in the national newspapers this week helps you separate the buying opportunities form the value traps.
Tuesday
Taylor Wimpey – Sell
Questor kicked off this week’s round-up by telling investors to avoid Taylor Wimpey. The article notes the dust is far from settled in the wake of the referendum and housing developers have been on the receiving end of some aggressive selling in recent days, but the column asks, is the slump justified? The reliance on Help to Buy and the London market are both seen as weaknesses here, even though house-price growth is still tipped to hit 4.5 per cent this year. The column also notes concerns that EU construction workers returning home may cause a skills shortage – but surely this is precisely what any points-based immigration system would allow for? The company has a strong balance sheet, too – the main problem seems to be the fact that the market cannot accurately price housing stocks right now.
Aviva – Buy
Tempus recommended buying Aviva. Its shares may have been savaged in the wake of the referendum, but the column notes that it has already pushed out a statement saying its capital position is good. The solvency ratio remains solid – earlier in the year, the number was taken by some analysts as being too conservative, but this market shock perhaps shows the sense in being so well protected. The stock comes with a 6.3 per cent dividend yield and this looks stable. The risk would seem to be more market malaise dragging the underlying price lower in the weeks ahead, but for now the column sees it as one of the safest plays out there.
Wednesday
Carpetright – Sell
Sell Carpetright, was the message from Questor on Wednesday. It’s the country’s largest flooring retailer and profits may be on the up, but there’s no shortage of uncertainty over the decision to leave the EU. The chain never really recovered from the 2008 crash and although it is trying to innovate with a move to smaller stores on the high street and offering new flooring products such as laminates, the costs associated with these changes mount up. Although the shares trade on a modest 12 times multiple, this is still pricing in some aggressive growth for the year ahead, which looks ambitious on a number of fronts.
Redrow – Buy
Tempus recommended buying Redrow. A bullish call for the housebuilder, but with shares down 30 per cent over the last six weeks or so and the company having to issue a trading update because business is proving so brisk, this could well offer value in a sector that is seeing a degree of turmoil. Demand is apparently unhindered in the wake of the referendum result and although there may be no slowdown for now, one issue that really needs to be considered is the potential for a tighter credit market to end up strangling mortgage availability. That aside, Redrow is trading below net asset value and on a multiple of just 5.5 times. Unlike peers, this isn’t an income play, but there’s no shortage of upside on the table, either.
Performance of stock year-to-date
Source: FE Analytics
Thursday
Greene King – Buy
Tempus said investors should buy Greene King. Every company exposed to UK consumer spending has been hit in the wake of the vote to leave the EU, but pub operator Greene King seems to have been a little overdone. The column argues that the purchase of Spirit Pub Company last year puts the business on a solid footing as some sizable potential cost savings have been highlighted. Executing these should provide some protection on the downside and with shares off more than 10 per cent since the vote, there’s value to be had here.
Standard Life – Buy
Buy Standard Life, was the message from Questor. Shares in the insurance sector were already under pressure before last week’s vote, but a 7 per cent dividend pushes the company towards value territory. There’s no doubting that falling bond yields have made life miserable for the sector, especially for life insurers, while Standard Life is facing an additional issue with the fact its Edinburgh base could need to be moved if Scotland successfully pushes for independence. That said, with the company cutting costs and increasing AUM, this stock looks oversold at these levels.
Friday
3i Group – Buy
Earlier this morning, Tempus recommended buying 3i Group. Shares jumped higher yesterday on the back of news that the company was holding on to a prized Dutch asset, despite approaches from interested parties. The discount retailer Action now accounts for around one-third of 3i’s portfolio – and the recent slump in the pound against the euro has further bolstered this. The company has an attractive dividend policy and with Action remaining a sound investment, there’s still a reason to wade in here.
Hammerson – Hold
Hold Hammerson, said Questor. The property sector has been rocked by the outcome of the referendum and Hammerson is no exception. UK consumer confidence has taken a hit off the back of the result, but the company is geographically diversified and is also innovating in its shopping malls, deploying more restaurants into the retail mix. Shares may be off notably from the start of the year, but they still trade well above historical lows of a few years ago. The recovery may be drawn out and the economic uncertainty does raise questions, but the column seems happy not to cut and run yet.
