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

Grafton Group

The Daily Telegraph

A dreary Brexit outlook and worries about the construction sector have prompted many investors to give this builders’ merchant a wide berth. Yet the business is growing market share and making judicious bolt-on acquisitions. A rigorous capital allocation policy has facilitated six consecutive double-digit increases in the dividend. Yet market jitters over the macroeconomic outlook mean that the shares are going cheap: a forecast price/earnings ratio of 12 represents a discount to peers such as Howden Joinery and Ferguson. 821.5p

Loungers

Shares

This newly listed casual-dining outfit looks set to buck the high-street gloom. Equal parts restaurant, pub and coffee shop, the flexible format of its sites makes it able to adapt to ever-shifting consumer trends such as breakfast gatherings or late-night drinking. The model generates high returns on capital – 36% for a Loungers site – that far outstrip the industry average. The shares are not cheap, but a “truly differentiated” format makes this an interesting growth story. 218p

Vodafone

The Times

Shares in Vodafone have lost a third in two years. Low-cost competition has hit revenue and squeezed the balance sheet. In May the group cut the dividend by 40%, the first reduction since 1990. Yet the company has arguably got through the worst and is racing to become Europe’s largest 5G network as customers demand faster speeds and more data for entertainment streaming. “A turnaround should start to take hold”. 131.5p


Three to sell

Marks & Spencer

Money Observer

February’s announcement of a £1.5bn food-delivery venture with Ocado is generating some excitement about M&S but the risks look high. It will be two years before any “serious money” starts to come in from the deal. In the meantime, the clothing business remains weak despite “many attempts” to reinvent the operation. 214p

IQE

Investors Chronicle

The US-China trade dispute has come at the worst possible time for this semiconductor supplier. The business nearly trebled capital expenditure to £30.4m last year, but its expensive bet on a new photonics foundry in Newport has run into industry supply-chain disruption. That means a growing quantity of stock, a particular problem in a sector where rapid innovation can quickly leave unsold widgets obsolete. The shares dropped 40% after a recent revenue warning, but further downgrades cannot be ruled out. 56p

Carnival

The Times

Shares in the world’s largest cruise operator tumbled last month after it revealed that bookings had been hit by weakening demand in Europe and US restrictions on travel to Cuba. A large ageing population spells huge opportunity in this sector, but US travel agents note that Carnival brands are being beaten out by competitors. A poor environmental record is likely to attract growing scrutiny. The industry is also suffering from overcapacity, particularly in Europe where Carnival is more exposed than peers. There are “choppy waters ahead” – avoid. 3,578p


…and the rest

The Daily Telegraph

US pharmaceutical business Merck & Co.’s Keytruda immunotherapy treatment has fewer side effects than existing drugs, which will help health providers keep a lid on medical cost inflation ($85.51).

Investors Chronicle

Liontrust Asset Management has enjoyed consistent investment inflows despite the uncertain market outlook and its shares trade on a discount to peers (736p). Risk-tolerant investors in the market for an Aim-listed gold play should take a look at obscure Russian operator Trans-Siberian Gold (75.5p).

Money Observer

Poor advertising figures have weighed on shares in ITV, but a strong backlist of sought-after content and a cheap valuation could make it a “sitting duck” for a takeover (110p).

Shares

Investors have until 18th July to take up a 106.5p per share issue at commercial property investor Regional REIT: a buy for income investors with a 7.7% dividend yield (107.6p). Improving customer ratings of its Frankie & Benny’s sites may herald a turnaround at Restaurant Group (135p).

The Times

The market has yet to price in the benefits that will flow from a planned de-merger at Prudential (1,788p). Dubai-based port operator DP World has embarked on a pricy acquisition spree but the global trade war is a reason to steer clear ($16). Sports nutrition retailer Science in Sport is well-positioned to gain from growing interest in workout supplements, but with big acquisitions elevating risk it is worth watching and waiting before rushing in (60p).


A German view

With Germany’s ten-year Bund yield slipping below zero, investors are desperate to find solid income stocks. Enter Munich Re, the world’s biggest reinsurer. It is one of the few “dividend aristocrats” in the German stockmarket, as Der Aktionaer points out. It has raised or maintained its annual payout since 1969. The stock currently yields 4.1%, while the profit outlook is also encouraging. Climate change should prompt companies to hedge against natural disasters to a greater extent than they do now, while cybersecurity is another promising field. It costs the global economy around $600bn a year, but cyber insurance only covers 1% of this sum.


IPO watch

The top spot in the annual global initial public offerings (IPO) market has alternated between New York and Hong Kong in recent years, note Hudson Lockett and Mercedes Ruehl in the Financial Times. Hong Kong secured it in 2018. In the first half of 2019 New York came out on top with $17.4bn of listings on the New York Stock Exchange and $14.4bn on the Nasdaq. Hong Kong could only muster $8.9bn. Chinese firms (notably tech stocks) keen to make a splash in the US have so far been undaunted by the trade war. Key debuts included Luckin Coffee and S-Young, an online marketplace for cosmetic procedures. They raised $561m and $179m respectively.