Each week, a professional investor tells us where he'd put his money.This week: Blake Crawford, JPM UK Dynamic Fund.
With the forthcoming EU referendum, widely regarded as the predominant "tail risk" to portfolios, casting a shadow over the outlook for UK equities, it's easy to get caught up in the negative sentiment. However, we believe that through disciplined stock selection investors can cut through the noise and find good opportunities regardless of the outcome of the referendum.
UK house builders continue to exceed analysts' earnings expectations and we own several names, including Bellway (LSE: BWY), whose shares remain attractive despite share-price gains. Many investors may have overlooked the benefits being reaped from the development land it currently has on its books, bought cheaply following the financial crisis. Buying land when prices were depressed was a good move and is why we are currently seeing a strong improvement in the firm's margins.
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The favourable industry backdrop suggests pressure remains to the upside for transaction volumes and average selling prices, which makes the forecast year-on-year growth in dividends through to 2018 look reasonable. Returning cash to shareholders has been a key theme in the industry, and Bellway's management has displayed admirable discipline in recent years a trend we expect to continue.
Perception doesn't reflect reality when it comes to WH Smith (LSE: SMWH). The company is undoubtedly under structural pressure in terms of falling high-street sales, but the management has been adept at managing decline by closing unprofitable shops, revamping existing stores and adding new services.
The sale of adult colouring books has been a strong driver behind improved high-street sales. The turnaround story could be seen in this year's results, which showed positive like-for-like growth in WH Smith's high-street stores, far exceeding analysts' expectations.
The reality is that WH Smith's travel business is thriving and outlets at train stations and airports are on a positive growth trajectory, bolstered by increased air and rail travel as the economy has picked up and employment figures reach record highs.
It is a highly cash-generative business, enabling it to invest in its expanding travel arm. It has also demonstrated that increasing shareholder wealth is a key objective, returning more than 50% of its market capitalisation in the form of dividends and share buybacks over the last five years.
Fever-Tree (LSE: FEVR), a producer of premium mixers and soft drinks, remains an attractive proposition. It continues to deliver strong sales growth as bars, hotels and retailers switch to premium brands. The shares aren't cheap, but we believe current forecasts are too conservative. The multiples are justified, given the vast growth potential compared with its peers and the sizeable market opportunity that exists through increased penetration and geographical diversification.
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