Share tips of the week

published 11 May 2018

Three to buy

Cineworld

Cineworld's $3.6bn acquisition of Regal Entertainment earlier this year made it the second-biggest player in the US cinema market, but it came at a cost. Investors are wary of the elevated debt that accompanied the deal, as well as slow growth in the US market. But with the shares trading at a 30% discount to international peers, Shares spies a bargain: 2018 is shaping up to be a "blockbuster year" for film releases, and this highly cash-generative business is well-placed to win back the market's favour. 264.5p

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WH Smith

The Sunday Times

The retail bloodbath of recent years has felled BHS, Woolworths and Toys R' Us, yet a robust travel unit and two-for-one offers have helped WH Smith to remain "remarkably unscathed". Lack of investment has left its high-street outlets looking shabby, but healthy profits from Smith's more than 840 sites in stations and airports compensate for the high-street decline, and it has expansion plans. 1,944p

Arix Bioscience

The Mail on Sunday

The days when big pharmaceutical companies took the lead on new treatments are over today two-thirds of all drugs approved by regulators have been discovered by "small, dynamic biotech firms". Such ventures often spun-out of universities need cash to get going, and Arix meets the need. An experienced management team puts potential investments through a "rigorous" screening process in a sector where some failures are naturally expected. Positive clinical trial results this year could prove a catalyst for the share price. 199p

Three to sell

De La Rue

Investors Chronicle

This security-products printing specialist is currently slimming down its unreliable banknote operation, a move that should cheer investors concerned about the potential emergence of a cashless society. Yet the firm's high-profile loss of the contract to make UK passports raises questions about whether other divisions will be able to pick up the slack, and results showing tighter margins mean that growth in the near term seems unlikely. 531p

J Sainsbury

The Daily Telegraph

Sainsbury's proposed takeover of Asda has brought an unexpected windfall for investors, with the shares soaring 16.6% on news of the deal. The merger should bring the new group greater pricing power, but large acquisitions bring months of regulatory delay and scrutiny, followed by all the difficulties of integrating two different businesses. These are significant risks when compared with the large gains on offer from cashing in on the recent price rise we reckon it is time to take profits. 314.5p

4D pharma

Investors Chronicle

This small pharmaceuticals developer has a number of drugs in development a Phase II trial for an irritable bowel syndrome treatment is upcoming, and the firm has just completed a Phase I study for a treatment for paediatric Crohn's disease. However, these are relatively early-stage trials, and while the company has some breathing space (cash burn was around £17.2m last year and it has "£50m in the kitty"), it has quite a mountain to climb, and the odds don't look great the US regulator approves an average of just 31 new drugs each year. 128p

... and the rest

The Daily Telegraph

Investors selling their Sainsbury's shares could re-invest the cash in underrated Tesco (235p). Britain has no equivalent of US tech giants such as Facebook and Google, but Scottish Mortgage Investment Trust offers exposure to the "best of global technology" stocks (487p).

Investors Chronicle

Marketing automation group dotdigital offers multiple growth opportunities (88p).A firm with oil operations in Iraqi Kurdistan and Somaliland will fall outside many investors' comfort zones, but higher crude prices and a stronger balance sheet means Genel Energy should prosper (215p). Eleven million Britons now use price-comparison websites and recent share price weakness at MoneySuperMarket.com is a good chance to buy in (302p).

Shares

The Irish economy is "in full bloom" and Dalata Hotel Group will be a key beneficiary (580.5p). Power-switching components specialist XP Power could be about to hit the acquisitions trail (3,500p). Shares in property regeneration specialist U and I are still cheap on the back of an "encouraging set of full-year results" (219p). A mixed trading update has hampered chemicals business Synthomer, but Shares rates its long-term prospects (495p).

The Times

Morrisons may gain if a merging Sainsbury-Asda needs to dispose of stores to satisfy the competition authorities (243.5p). Egypt-focused goldminer Centamin boasts a strong balance sheet, no debt and good cashflow (156.75p). Aviva's preference-shares debacle aside, the insurer is a sound business which may yet see M&A action (529.25p).

An American view

Shares in US Bancorp, the fifth-largest bank in America based on deposits, have lagged their peers in the past few months, says Andrew Bary in Barron's. That gives investors an opportunity to pick up one of the country's most efficient and profitable banks for the reasonable price of 12.6 times 2018 earnings. Unlike its rivals, US Bancorp has little exposure to volatile investment banking and trading, while it boasts "attractive niches" such as strong positions in corporate cards and wealth management. Throw in conservative lending and tight expense controls, and it's no wonder its return on tangible equity of 18% is far ahead of key rivals. Warren Buffet is a fan: he holds 6% of the stock.

IPO watch

Chinese online healthcare platform Ping An Good Doctor has raised HK$8.77bn (US$1.12bn) at its initial public offering (IPO) in Hong Kong. The Good Doctor platform, a spin-off from insurance group Ping An, connects users to healthcare providers across 3,100 hospitals and 7,500 pharmacy outlets, and was valued at $5.4bn in February. The IPO is the biggest in Hong Kong so far this year and has whet investors' appetites for more listings by technology unicorns, with Ant Financial (operator of Alipay) and smartphone-maker Xiaomi in the frame. Hong Kong is implementing new rules designed to attract more start-ups to list there instead of opting for rivals such as New York.