Share tips of the week

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

Diageo

Shares

A portfolio of winning brands, including Johnnie Walker and Guinness, and well-diversified earnings from all across the globe, mean that Diageo, the world’s biggest spirits group, has a reassuringly wide moat to protect it from market turbulence. Last year, it returned £1.5bn to shareholders via a share buyback scheme and there will be £2bn-worth of buybacks in 2019. Since Ivan Menezes took the helm in 2013, Diageo has focused on emerging markets, where a growing middle class has resulted in booming demand for premium alcohol brands. In the year ended 30 June, organic net sales grew by 5%, beating City estimates. 2,802p

BP

The Mail on Sunday

Eight years after the Deepwater Horizon disaster in 2010, which practically cut BP’s share price in half – it fell from 623p to 319p – the firm has renewed confidence. CEO Bob Dudley recently increased the dividend and spent $10bn on a portfolio of US shale oil and gas fields. Results for the three months to 30 June saw profits quadruple to $2.8bn, thanks to rising oil production. The 5.5% dividend yield will appeal to income investors. 553p

SSP

Investors Chronicle

This operator of food and beverage outlets in travel locations has cause to celebrate when strikes force travellers to stay in departure lounges. In total, SSP accounts for nearly one-third of the global market for food and drinks in transit locations, while both air and rail markets are still growing. At the latest third-quarter update, SSP’s group revenue was up 7.3% at constant currency, while its net contract gains also rose 3.3%. 680p


Three to sell

ConvaTec

Investors Chronicle

This medical products and technologies firm is trying to make up for years of under-investment, which sent its research and development (R&D) costs up 15% in the first half of this year. This isn’t necessarily a bad thing – ConvaTec needs to invest to compete in crowded markets – but the long-term nature of R&D means it’ll take a while to reap the benefits. The group is also known for over-promising and under-delivering. 227p

Senior

The Times

This supplier to the world’s biggest aircraft makers last week posted a set of interim figures that were “far better than expected”. Both of Senior’s two divisions – Aerospace, which makes parts for Boeing and Airbus, and Flexonics, which makes parts for off-road vehicles –  saw sales and operating profits rise. The share price climbed to not far off its all-time high as a result. Yet on nearly 30 times earnings, Senior feels “richly priced and it’s tempting to conclude that the future good news is built in” – avoid. 334.5p

Superdry

Investors Chronicle

Disappointing results and a share sale by co-founder Julian Dunkerton have lead to fears that this clothing chain’s shares will fall further. Superdry is suffering from a squeeze on margins, slow in-store sales and concerns about its “brand vision”. A special dividend announced in July may support the shares in the shorter term, and last year’s rise in operating cash flow from £82m to £104m is good news. But the timing of Dunkerton’s sale is concerning – investors should follow his example. 1,211p


…and the rest

The Daily Telegraph

Hollywood Bowl should benefit as the bowling market grows – the firm commands 44% of the market by sales (206p). Buy digital inkjet printing provider Xaar – it warned on profits in November and there are risks of further disappointments, but it could also be targeted by an overseas predator on the hunt for a technology leader (250p).

Shares

Power-equipment engineer XP Power has seen its share price double in 18 months and has further to go (3,620p). Half-year results at chemicals business Croda beat expectations and may make room for a special dividend (5,158p). Alliance Pharma saw sales rise by 10% to £54.5m in the six months to 30 June (92.25p). Brick maker Ibstock has warned on profits due to a cool winter and production problems, but the demand for its products remains high – buy (245.25p). Fresh pork and poultry processor Cranswick is well placed to drive long-term growth in profits (3,304p).

The Times

Lender Provident Financial has “lurched from crisis to crisis”, but once it’s fixed, it has “massive potential” (670p). Packaging maker Smurfit Kappa is in one of the hottest sectors of the moment, but main rivals Mondi and DS Smith offer better value (3,212p).

Investors Chronicle

Law and professional services firm Gordon Dadds listed last year in order to pursue an aggressive acquisition “master plan” – buy into its growth opportunities (173p). A forecast price/earnings ratio of 11 times for 2019 looks cheap for media group Tarsus, especially as it is growing faster than its more expensive peers (315p).


An American view

Last week, Apple became the first US company to reach a market value of $1trn. Shareholders should hang on for more upside, says Barron’s. The iPhone maker is finally starting to get credit for more than its handset volumes. In fact, Apple’s latest earnings release saw a record 31% year-on-year rise in services revenue to $9.5bn. Its “other products” segment, which includes accessories and watches, brought in $3.7bn, up 37%. Apple also still has cash and investments equal to nearly a quarter of its market value, and solid growth potential. Wall Street expects earnings per share to rise by 15% over the next financial year. That makes a 5%-10% premium valuation “look plenty reasonable”.


IPO watch

Chinese social-media giant Bytedance is planning to go public next year, after the firm’s efforts to raise money privately were ruined by a government crackdown, “people familiar with the company’s plans” have told the Financial Times. Bytedance was founded in 2012 and is best known for its Jinri Toutiao news feed and short video app Douyin. In April, it clashed with Beijing over what the media regulator branded “vulgar” content as part of a state crackdown. It was ordered to close the account and the mobile app was removed from several online stores. This, in turn, halted a fundraising exercise that would have valued the group at up to $45bn, in contrast to its then-valuation of $20bn.