Each week, a professional investor tells us where he’d put his money. This week: James Illsley of the JPM UK Equity Core Fund.
The UK economy has been ticking along far better than most people had expected this year, which has helped support the domestic stocks in the UK equity market, while the weakness in sterling has benefited the many international earners in the FTSE 100. Investors will probably benefit from being agile as we go through the process of leaving the European Union, as there will be opportunities when the market bifurcates into those companies that will benefit from Brexit and those that will face headwinds.
Bellway (LSE: BWY) is one of the UK’s smaller quoted housebuilders. It has a sensible growth strategy and, with demographics driving demand for new household formation of around 250,000 homes per year, Bellway is playing its part in what is a structurally undersupplied UK housing market. The long-term demand for more houses is likely to underpin Bellway’s growth at a time when many other housebuilders seem to have reached their target size and are not growing volume. Despite this long-term growth, the shares are still very good value at only around 1.4 times 2017 net tangible asset value, with a price-to-earnings ratio of 7.1 times and a yield of 5% – which is covered three times by earnings.
John Laing (LSE: JLG) originates and invests in infrastructure projects. Its portfolio is diverse, both geographically and in terms of its underlying sectors. It is exposed to transport, social and environmental infrastructure and renewable energy. Laing’s management team has a record of bringing investments through the preferred bidding stage to financial close then construction and into the secondary market, where they are either sold on or managed in-house. In an uncertain world, infrastructure projects have an appealing defensive quality about them, particularly when politicians cite increased spending on infrastructure as a way of supporting global growth.
CRH (LSE: CRH), while headquartered in Ireland, is the UK’s largest quoted building materials company with operations spanning Europe and the US. The company is the number-one provider of paving, asphalt and concrete products to the US, which makes up 50% of its business, so it should stand to benefit from any renewed infrastructure spending both in the US and here in the UK. Back in early 2014, CRH was widely regarded as an out-of-favour value stock, trading on a low valuation with depressed activity in Europe affecting investor sentiment. However, there is an underlying value to its assets – you cannot transport aggregates and concrete very far, after all – and it contains reserves in its quarries that should last for more than 100 years in some cases. As the US economy has continued to grow, with robust construction demand, allied with recovery in Europe, we have seen improving momentum in the company’s earnings.
[pugpig_boxout id=”1″]