MoneyWeek’s comprehensive guide to this week’s share tips.
Three to buy
The Mail on Sunday
Britons will be creating a lot of rubbish in the next few weeks, with miles of wrapping paper and millions of Christmas trees. Biffa recycles the waste from 2.4 million households, and for businesses such as John Lewis and Sainsbury’s. It is well positioned and has the economies of scale to make “significant progress” in the years ahead. 244.5p
This Aim newcomer hopes to do with online mattress sales what breakout success Fever-Tree has done with premium drinks. Awareness of the brand is growing – helped by a hefty marketing spend. There are no profits yet, but the potential for strong growth down the line makes this a buy for the more risk-tolerant. 102p
The Sunday Telegraph
This British high-street icon once looked like it would become another retail casualty. But it tightened cost control and dumped low-margin items such as CDs. Many of the stationery and book retailer’s sales are impulse purchases to customers on the go, so it has less to fear than most from the likes of Amazon. The shares are up 50% since last Christmas and are not cheap, but there could be more growth to come. 2,184p
Three to sell
This equipment rental group provides a wide range of services. The weak pound has boosted the value of its overseas earnings, while destructive US hurricanes have brought renewed demand for its cranes and diggers. However, these one-off events do not provide a platform for longer-term growth, so this looks like a good opportunity to cash out at a record high share price. 2,062p
The Sunday Times
Shares in the carpets and flooring retailer have performed abysmally in recent years, down from 700p in 2013 to less than 180p last week. Like-for-like sales in the UK have been “inching up”, but with inflation high and consumers tightening their belts there are “too many headwinds”. Margins at the continental operation have also been “clobbered” by intense competition. Avoid. 176p
Half-year results showed the slowest growth at this software firm since it floated in summer 2015. Headline revenue and pre-tax profits were flat, affected by weak NHS investment. There are more encouraging signs elsewhere and the business remains a “class digital enabler with strong long-term prospects”, but with the price/earnings (p/e) ratio above 30, it’s time to cash out. 314.75p
And the rest
The Daily Telegraph
Demand for the services of acquisitive veterinary group CVS remains strong – a “hold” for existing investors and a possible buying opportunity for new ones (1,054p). Hold Saga, the over-50s travel and insurance company, despite a profit warning – the yield should provide support for the share price (129.5p).
Companies and organisations are trying to bolster their fire-safety compliance, and support-services group Marlowe is well placed to benefit (348p). “Big data” specialist First Derivatives isn’t cheap, but it’s an excellent business (3,690p). FTSE 250 oil and gas play Cairn Energy has not made much progress in 2017, but could get more investor attention in the year to come (209p).
Life insurer Aviva is a “cash-generating machine” (510.5p). Doubts about the London property market have kept a lid on housebuilder Telford’s share price, but its focus on affordable and build-to-rent housing puts it in a growing niche (408.5p). Pension services firm Xafinity is building scale after a £153m acquisition (187.75p). Investors have been slow to recognise the turnaround at electronics business Laird (136.25p).
Bowling-alley operator Hollywood Bowl turned in a “sure-footed performance” this year with a special dividend to boot (203p). Shares in distributor Bunzl have suffered as it struggles with competition from Amazon, but that could make the business up its game – hold on (2,027p).
Computer-games developer Sumo Digital raised £38.5m in an initial public offering on the London Stock Exchange’s Aim board this week. Sumo, which creates games for publishers including Sony and Microsoft, has worked on franchises including Forza Motorsport and Hitman. The IPO was priced at 100p per share, valuing the firm at £145m. Sumo had earnings before interest, tax, depreciation and amortisation (Ebitda) of £3.4m from revenues of £14.3m in the first half of 2017, says the Financial Times. The capital raised will be used to trim its £54m debt and fund expansion. Existing shareholders – comprising private-equity firm Perwyn and Sumo’s management team – also sold £40m of their shares in the IPO, retaining a 43% stake.
An American view
Shares in Alaska Air, America’s fifth-biggest airline, have slipped by a fifth this year, says Lawrence Strauss in Barron’s. That’s largely due to concerns over last year’s acquisition of Virgin America, which cost the group $2.6bn. Virgin was quite a mouthful, and Alaska took on debt to finance the takeover, but it is working it off and Virgin has already begun to add to Alaska’s earnings. The acquisition also “makes sense strategically”, giving Alaska “more heft” in California and East Coast markets and reducing its reliance on its hubs in Seattle, Portland and Anchorage. Alaska offers “the right mix of great service, lower costs and reasonable fares”, says Andrew Davis of T. Rowe Price. Throw in a healthier balance sheet than its bigger, national rivals, and the shares deserve to gain altitude in 2018.