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

BAE Systems

Shares

In troubled times this defence giant offers steady growth at an “undemanding valuation”. The group’s impressive global diversification acts as a hedge against Brexit uncertainty, with BAE making 39% of sales to the US and 16% to Saudi Arabia. 2018 brought fighter jet orders from Qatar and frigate purchases from Australia, ensuring a good pipeline of work in the coming years. The shares offer a 4.6% prospective dividend yield. Full-year results on 21 February could prove a “big share-price catalyst”. 503p

Fresnillo

The Sunday Telegraph

The election of left-wing firebrand Andrés Manuel López Obrador (AMLO) to the Mexican presidency last year worried shareholders in this Mexico-focused precious metals miner. But the new government has shelved talk of higher mining taxes. Precious metals are rallying, while Randgold Resources’ imminent de-listing could see gold and silver bugs put their money in Fresnillo instead. The shares should “gleam” again. 887.6p

Weir Group

The Mail on Sunday

This Glasgow-based engineer makes and repairs specialised equipment used for mining and in oil and gas production. The firm employs 18,000 people in more than 70 countries, generating annual sales of roughly £2.5bn, 95% of which come from outside the UK. A recent slowdown in the US fracking market has spooked some investors, but 2019 should bring a recovery, while the mining division is also making “strong progress”. Analysts expect encouraging figures when Weir announces 2018 results at the end of next month. 1,415p


Three to sell

Boohoo

Motley Fool UK

Revenue at this fast-fashion retailer leapt 44% year-on-year during the last four months of 2018. A 1.7% rise in gross margins is particularly impressive given poor profitability has dogged rival Asos. Yet the headline numbers don’t tell the whole story. Sales at the main Boohoo division only rose 15% – impressive but below market expectations. A forward price/earnings ratio of 47 leaves little margin for error if growth slows down, making the shares a risky prospect. 181.55p

EnQuest

Investors Chronicle

This North Sea explorer and producer is highly geared to any rally in the price of oil, but die-hard oil bulls would do better to look elsewhere. The group’s “huge debts, high costs and long project delays” mean cash flow has gone into the pockets of lenders rather than shareholders in recent years. The group’s operations are overly concentrated on a few fields, increasing risk. What’s more, EnQuest’s “sizeable dollar-denominated debts” are made all the more challenging by sterling’s prolonged weakness. 20p

Vodafone

The Times

“Vodafone shareholders prize their dividend”, but with the shares yielding 9% the market seems “braced for a sharp cut”. The €18bn acquisition of Liberty Global’s cable assets in Germany and eastern Europe will significantly add to a €32bn debt pile, potentially triggering a credit downgrade. “Costly spectrum auctions” and 5G upgrades mean Vodafone is unlikely to maintain the current “gravity-defying dividend”. 148.75p


…and the rest

The Daily Telegraph

Palm oil producers MP Evans and Copenhagen-listed United Plantations are both family-run businesses with strong balance sheets, making them resilient commodity plays (656p; DKK1,345).

Investors Chronicle

Public sector-focused software specialist Kainos is a great way to play Whitehall plans to digitise more government services: growth has been “phenomenal”, and the group has no debt (394p). Logistics group Wincanton has announced a new transport and warehousing partnership with Weetabix. The shares are cheap, although the balance sheet may scare away the less risk-tolerant (234p).

Shares

The £348m sale of its commercial-property portfolio means that pub operator EI Group can reduce debt and return more cash to shareholders (202.5p). Shares in fire and water safety expert Marlowe have drifted downwards over the past few months, but positive earnings momentum could prompt a re-rating (389p). Bulmers and Magners brewer C&C has turned in a healthy Christmas performance and has momentum (€3.19).

The Times

Consort Medical is one of the pharmaceutical businesses hit by the US shutdown, which has delayed new drug approvals. The group’s revenues should tick up when the Food and Drug Administration gets back to work, while if the shares remain at current oversold levels it could prove “an attractive takeover target” (800p). Giant warehouse investor Tritax Big Box has reliable blue-chip tenants and offers a 4.8% prospective dividend yield (138.5p).


An American view

Ball Corporation is one of 2019’s most promising stocks, Rivulet Capital’s Oscar Schafer told the Barron’s Roundtable. Having snapped up British rival Rexam in 2016, Ball has become the world’s biggest drinks can manufacturer; it also produces metal packaging for food and household products. Environmental worries surrounding single-use plastic packaging are good news for makers of aluminium cans, which are “infinitely recyclable”.  Global consumption of drinks is ticking up as emerging markets become richer, while the decline in “big beer” sales volumes is being more than offset by rising demand for craft beers and mixed drinks. Schafer sees scope for the shares to rise by 30%.


IPO watch

Investors have been looking forward to several big tech flotations in 2019, says Olivia Feld in The Sunday Telegraph, starting with ride-sharing apps Uber and Lyft. But the US government shutdown is causing delays. Staff at the Securities and Exchange Commission (SEC), the financial regulator overseeing initial public offerings (IPOs), have not worked since 27 December. Firms preparing an IPO issue a draft prospectus that the SEC comments on, usually within 20 days, before a final prospectus emerges. Proceeding without SEC feedback is deemed risky. The SEC has yet to comment on Uber and Lyft’s initial drafts, so it will be some time before they come to market.