Stuart Fowler, head of UK equities, Axa Investment Managers tells MoneyWeek where he'd put his money now.
There is no common theme behind the stocks that I favour at the moment. I have some top-down themes in mind for example, that the UK consumer sector is slowing fast, but that this will lead to a fall in interest rates but there don't appear to me to be any obvious ways of making a lot of money out of such themes. At the margin, falling rates make continuing weakness in sterling more likely, but even with that in mind, I find I can still unearth businesses based entirely in the UK that are attractively priced.
One is Kingston Communications (KCOM), the Hull-based telecoms and communications service provider. Most newspaper articles on the company are accompanied by a picture of one of their cream-coloured phone boxes, but this fails to capture the breadth of their current operations. Following the acquisition of Omnetica last year, which gave the group significant network-service skills, the company looks well placed to win more new corporate communications contracts across the UK. With the shares depressed following a large recent placing by the venture capitalist that sold Kingston Omnetica, they look attractively priced to us. Another telecom I like is Vodafone (VOD) although I am in danger of turning into a stale bull on this one. The shares continue to trade on attractive multiples, with earnings forecasts still being upgraded, and eventually I expect the market to recognise the company's prodigious cash generation.
I've been also been buying Intertek (ITRK) following a sharp fall in the share price. The firm offers product inspection services, and is best known for the checking of goods and apparel made in China and the Far East, prior to their export to Western markets. Clearly, this is a strong growth market, and although the shares cannot be said to be lowly rated, a recent setback following the announcement of a step-up in capital expenditure appears to be overdone. In addition, the firm's profits forecasts could well be upgraded if the dollar continues to move ahead.
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Micro Focus (MCRO), a recent new issue, is another business that earns a significant proportion of its revenues in dollars. It makes software that enables firms to access data held in legacy systems in up-to-date applications, and has a high-margin business model, as service partners are largely responsible for the installation of its programs. With the pace of software and systems development showing no signs of slowing down, I expect the firm's outstanding prospects to attract more followers, particularly when it joins the All-Share index within the next quarter.
Although I invest in the funds I run (and hold the above stocks in the Axa UK Opportunities Fund), I also hold some individual stocks in my Pep and Isa. I like split-capital investment trusts, where, over the years, I've been able to find a few small survivors where the risk/reward is in my favour. My largest holding is in the Allianz Dresdner Income Growth ordinary shares, which winds up in just under a year. (The underlying portfolio is very similar to that of Merchants Trust quite conservative.) By my calculations, I should make close to 15% in that year, even if the market doesn't move, and the shares are highly geared to any further gains in the market (but don't forget that the converse is also true). When this fund winds up, I expect to switch the proceeds into the Schroder Split Investment Fund ordinary shares.
