MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK’s financial pages.
Three to buy
Bunzl
Investors Chronicle
Bunzl is a distribution and outsourcing business, shipping everything from cleaning materials to food packaging. Almost 60% of revenue came from North America last year. Shrinking margins and worries about the threat from Amazon have weighed on the share price, yet the firm has produced steady growth and healthy cash generation. Bunzl focuses on larger customers with complex needs, which helps it fend off Amazon. Now looks like a “good time to jump in”. 2,306p
Goodwin
Money Observer
Goodwin’s giant valves are used in pipelines and terminals to control the flow of oil and gas. Goodwin remained profitable during the oil slump by diversifying into defence and structural engineering. A new $19.5m contract with the US Navy bodes well for its mechanical engineering division, with orders for the castings used in nuclear fuel processing expected to follow. Now “may be a good time to buy”. 2,800p
Volkswagen
Barron’s
The stock has been “in reverse” ever since the diesel emissions scandal, falling 40% from a high in early 2015. Yet despite the negative publicity and the global car market’s current “funk”, the world’s largest car maker has still managed to produce “solidly growing profits”. The shares trade at just five times next year’s estimated earnings per share, cheap for a business with “unmatched global brand strength”. Slimming down a convoluted structure and spinning off premium brands such as Porsche could bring yet richer pickings in the future. €146
Three to sell
Halfords
The Sunday Times
The bicycle and car-parts specialist says rising costs and investment led to a 23% fall in profits in the first half of its financial year. What’s more, the heavy spending means there is no profit growth in prospect until 2021. The splurge is part of a plan to compete with Amazon through greater specialisation, cutting out ranges such as camping equipment. Yet the average customer visits Halfords less than twice a year, so slimming down product lines further could be counterproductive. Avoid. 300p
IP Group
The Sunday Telegraph
With interests in 155 companies, this FTSE 250 firm’s investments make for a “dizzying array”. IP Group promises to turn university research into profits, yet “the suspicion is that it should be doing better”. The shares trade at a discount to net asset value – a rarity for a portfolio containing many fashionable themes in life sciences and technology. Last year’s “blood-letting” at peer Allied Minds is a reminder that the university spin-out game is a risky one. Avoid. 106p
Restaurant Group
The Daily Telegraph
A solid turnaround story at this restaurant chain has been undermined by its decision to shell out £357m for noodle seller Wagamama. Management speaks of a “transformative” addition to its “multi-pronged growth strategy”, but the takeover will add to debt levels and could see other brands in Restaurant Group’s stable being neglected. It’s “the wrong deal at the wrong time at the wrong price” – time to “cut and run.” 237p
…and the rest
Investors Chronicle
B&M European Value Retail is a defensive play in a struggling sector. Buying France’s Babou provides it with a new route to international growth (405p). What bathroom specialist Norcros lacks in excitement it makes up for with earnings growth, and the business has plenty of room to expand in a fragmented market (217p).
The Mail on Sunday
Mineral miner Base Resources, which provides the raw materials used for a whitening compound for toothpaste and paint, looks undervalued and could rise substantially over the coming year (15.90p). Investors in kitchen supplier Howdens Joinery have more than doubled their money in five years. They should take profits on at least half their stock but keep some money on the table: “the British do love a new kitchen” (468p).
Shares
Magners cider maker C&C Group looks like a good “value tipple” with a 4.8% prospective dividend yield (€3.22). Pubs are reporting stronger demand for drinks than food, good news for “wet-led” pub operator Ei Group (176p).
The Times
Online fashion business Asos is delivering “levels of growth that most bricks-and-mortar retailers can only dream of” (5,488p). The crackdown on fixed-odds betting terminals has hit William Hill’s UK arm. The opening of the US sports betting market looks promising but there are many rivals – “the odds against this bet are too high” (186.5p). Petrol forecourts retailer Applegreen’s low yield of just 0.2% makes the shares unappealing (545p).
An American view
The US housing sector is facing higher mortgage rates and raw material costs, says Al Root in Barron’s. But the consequent sell-off “has left a few stocks looking like bargains” – notably suppliers of heating and air conditioning, which comprise a “high-quality niche”. Heating and air-con units usually last for 12-15 years, so those installed at the height of the housing boom in 2003-2006 are due for renewal. The trend towards “smarter” homes is promising, as providers can charge more for systems connected to smartphones. Lennox International is the most appealing pick here. It has the strongest return on capital in the industry and has grown profits by 24% a year for five years.
IPO watch
America’s Moderna is planning the biggest initial public offering (IPO) in the history of the biotech sector: it is to raise $500m on the Nasdaq. Its last fundraising round implied it was worth a total of $7bn. Why so much? It has been working on “an entirely new way to treat disease”, says Ben Fidler on Xconomy. It develops so-called synthetic messenger RNA drugs designed to prompt the body to produce proteins that can fend off disease. But “the method is entirely unproven in humans”, and several other firms work on it. Moderna has been investing heavily in the technology, which is why it made a loss of $256m last year. It has burned through $865m since its inception in 2010.