Share tips of the week
MoneyWeek’s comprehensive guide to this week’s share tips
MoneyWeek's comprehensive guide to the best of this week's share tips from the UK's financial pages.
Three to buy
British American Tobacco
The Sunday Times
Traditional smoking mightbe going out of fashion, but BAT is staking its hopes on next-generation products.It expects vaping and "heat-not-burn" cigarettes to make up half of revenues by 2030. Last year's $50bn deal to buy the 58% of Reynolds American it didn't already own was a savvy move and US tax reform is likely to bring a $541m windfall. The firm trades at a discount to peers, with the average of analysts' price targets implying a 30% upside. 4,451p
City Pub Group
Mail on Sunday
This business owns an estate of high-quality pubs in affluent towns and cities across London and southern England. Each pub is distinctive, with food and drink locally sourced, while an employee profit-sharing scheme boosts staff loyalty and motivation. Management is experienced and keyed into growing social trends, such as veganism. The group joined Aim at 170p per share last November and now looks like a bargain following a pullback in the share price. 167p
This FTSE 100 chemicals firm is "one of the highest-quality companies on the stockmarket". Croda creates and sells chemicals for use in beauty products. Investors are happy to pay a premium for a well-managed firm that generates superior returns, and on 23 times forecast earnings the valuation isn't excessive. An exciting year could be ahead with the hope of a special dividend. 4,347p
Three to sell
AA "is struggling to shake off the demons of its private-equity-backed past". It floated in 2014 and raised extra cash eight months later, but net debt remains high. AA is cash-generative, supporting a 7.9% forward dividend yield, but falling membership numbers suggest long-term decline.A higher insurance premium tax is threatening margins and activist investors have been shorting the shares. 118p
The Daily Telegraph
This energy, healthcare and technology distribution specialist boasts strong profit momentum, hardly any debt and annual dividend growth stretching back to 1999. November interim results showed operating profit leaping 25%, but it is questionable how much is from organic growth, given its acquisitive strategy. Trading on a valuation of 22 times forward earnings, there is little room for error. 6,900p
Consumers are drinking less cola and eating fewer crisps bad news for a firm that derives most of its revenue from soft-drink and snack sales in North America. It is responding with Bubly, a new line of unsweetened sparkling water, launching this month. Operating profit at the North America beverages operation plunged 22.6% in the fourth quarter compared with the year before. Other divisions are doing better, but avoid until Pepsi shows that it can rebalance its portfolio tolow-calorie brands. $112.14
And the rest
The Daily Telegraph
The electric-vehicle revolution is under way, but it can be difficult to pick a winner among carmakers, so buy Chilean lithium miner SQM ($54.50). National Grid's monopoly status gives it protection from political meddling in the UK, while the US division provides growth (741p). Housebuilder Crest Nicholson offers a high-quality business and high income with a yield of almost 7% (477p).
North African oil and gas explorer SDX Energy is a debt-free, low-cost producer with growing cash flow (49p). A solid Christmas trading update at Ted Baker heralds a new phase of growth (2,974p). Make-up supplier Warpaint has acquitted itself well in the competitive cosmetics sector (225p).
Analysts think a sell-off at cybersecurity business Sophos has been "overdone", creating potential for a 40% upside (490p). Risk-tolerant investors should buy the dip at Next (4,765p). Growth-and income-hungry investors should see the price pullback at gambling business GVC as an opportunity (884.5p).
Data giant Relx is a growth stock and offers a reliable dividend (1,467.5p). Last year's £2.2bn takeover of Amec Foster Wheeler should start to bear fruit for energy services group John Wood Group (600p). Sell retirement homebuilder McCarthy & Stone the government's crackdown on ground rents will hit profits (148p).
An American view
Starbucks' stock has done nothing since 2015, but this makes it ideal to buy now, says Barron's. The coffee firm is forecasting same-store sales gains of 3% to 5%, solid revenue growth, and earnings-per-share growth of at least 12% in the next three years. It has streamlined expenses, including the closure of its Teavana retail stores, the elimination of its e-commerce operation and the sale of Tazo to Unilever. It is also growing significantly in China, where it has purchased 1,300 stores from Uni-President Enterprises, and is currently adding 600 stores per year in the country. The stock yields 2%.
Soho House, a network of private members' clubs, is considering a flotation in New York that would value it at about $2bn, reports Sky News. The UK-based firm opened its first venue in London in 1995, but is now present in several cities across Europe and North America and aims to expand into Asia and Latin America. In 2016, profits soared 23% to £31.7m, with revenues up by a similar amount to £273.6m. Turnover jumped in the first half of 2017 by 28%. However, the firm has borrowed heavily to fund growth last year, it agreed a £375m deal to refinance debts and provide fresh capital.