Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Ben Ritchie, senior investment manager at Aberdeen Asset Management.
We take a long-term view on investment, champion a bottom-up' approach and concentrate on finding good-quality companies at attractive prices. Within an income-focused portfolio like the Aberdeen UK Equity Income fund, the ability to generate a sustainable and growing dividend is also a critical consideration.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The first company that warrants investors' attention is Experian (LSE: EXPN). Experian has leading market positions in consumer and business credit data in Britain, Brazil and America.
The company gathers data from several sources at very low cost and sells the information to credit-granting institutions. This data is built up over years, which creates a high barrier to entry for potential competitors.
Experian has significant market shares in its chosen markets, which puts it in a strong position to benefit from credit growth in its core markets, particularly as the UK's economic outlook improves, and Brazil's middle class continues to expand.
The company also has strong cash flows, which will be used to buy other businesses and to continue to grow payouts to shareholders in the form of both share buybacks and dividends. While the shares are not cheap, trading on 19 times 2014/2015 earnings, we believe the company's growth is sustainable in the long term.
Despite some fairly pedestrian share-price performance in recent years, banking giant HSBC (LSE: HSBA) has undergone some significant operational changes following the financial crisis. The bank has sold more than 50 non-core businesses and has reduced its annual operating costs by nearly £3bn, with management believing there are still further efficiencies to be made.
Current interest rate and regulatory conditions remain challenging. However, an improving economic picture in America and Britain, coupled with strong market positions in the developing world, alongside its internal improvements, leave HSBC well placed to grow in the coming years.
The shares carry a dividend yield of 4.5% that we expect to rise ahead of inflation. HSBC also trades at around 1.2 times book value, which is very modest in a historic context.
Oil major Royal Dutch Shell (LSE: RDSB) is another large UK-listed company that has been somewhat out of favour in recent times, and yet has made significant progress in refocusing and improving its business.
Through divestment of downstream assets and a large capital expenditure programme, Shell is now more focused on its upstream operations (exploring and producing oil). This investment phase has constrained cash flows, but the first of its pipeline of long-term projects is starting to come on stream and its other major projects are on schedule. This leaves investors with the prospect of less expansionary investment and higher production, which should generate significantly increased free cash flow.
With the company retaining a strong balance sheet, we see mid-term opportunities for shareholder returns to be substantially increased on top of the already attractive 5.3% dividend yield that the shares offer, while the valuation remains undemanding on 8.6 times 2014 earnings.
-
Jeremy Hunt: Tech and defence will make Britain great again - investors should stay or risk missing outFor investors shifting away from the UK, tech and defence may well be opportunities worth staying for, the former chancellor Jeremy Hunt says.
-
Can the House of Lords change the government’s mind on controversial inheritance tax reforms?The House of Lords has launched an inquiry into inheritance tax changes on pensions and agricultural property relief - can the government’s plans be stopped?
-
HSBC stocks jump – is its cost-cutting plan already paying off?HSBC's reorganisation has left questions unanswered, but otherwise the banking sector is in robust health
-
HSBC returns to cost-cutting plan
HSBC is set to revamp its commercial banking division – but will it come at a cost?
-
Three UK stocks for long-term growthUK Stocks Professional investor Nick Train picks three UK stocks to invest in the British boom.
-
The top stocks and funds to buy according to DIY investorsDespite fears that the top technology stocks could be overvalued, DIY investors have piled into tech shares, funds and investment trusts during August
-
Britain’s most-bought shares w/e 12 AugustNews A look at Britain’s most-bought shares as of 12 August, providing an insight into how investors are thinking and where opportunities may lie.
-
Will HSBC be torn apart?News Banking giant HSBC has pleased the market with a new dividend policy. But its top shareholder thinks it should be split in two. Matthew Partridge reports.
-
Should you be worried about energy windfall tax proposals?Analysis Calls have been growing for a windfall tax on UK oil and gas producers. It's a popular idea, but is it a good one? And what does it mean for investors in the UK's energy companies? Rupert Hargreaves explains.
-
The outlook for Shell shares is mixed, despite bumper profitsAnalysis With profits surging, it looks as if Shell is on a roll, but the company’s growth from here is hard to see as Rupert Hargreaves explains.
