Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Martin Cholwill, manager of the Royal London UK Equity Income Fund.
Anaemic growth has been a dominant feature of the economy ever since the credit crunch and it looks set to stay that way for years to come. Although QE may have stopped the global economy collapsing, it will not by itself drive us back to previous levels of growth.
Deleveraging has not yet fully played out and will be a significant headwind for years to come. As a consequence, interest rates will remain low for the foreseeable future. All of this means that equity-income-based strategies should deliver attractive returns, but only if investors choose stocks that can deliver sustainable and growing dividends.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The three stocks that follow reflect certain themes that have worked well for me in recent years. I like to stick to quality companies with strong balance sheets that can offer sustainable and growing dividends backed by cash flow.
I also have a survivor' bias I like companies that have benefited, or can benefit, from competitors that have weakened or disappeared. Conversely, investors should be wary of weak companies that are vulnerable to the whims of political intervention.
My first recommendation is Cineworld (LSE: CINE), one of the largest operators of multiplex cinemas in the UK. Unlike some forms of consumer spending, cinema attendance has held up very well during the recession. It fits into the classic affordable treat' category that people will not give up lightly. Some analysts worried that this would be a difficult year for the firm, with the Olympics and Diamond Jubilee distracting viewers.
However, film-release schedules were cleverly adapted and, as we have seen from the latest James Bond film, cinema attendance is very much alive in Britain. Cineworld has fully invested in digital technology and, better still, its competitors have weakened financial positions. The shares offer close to a 5% dividend yield that should continue to grow over the medium term as more cinemas open around the country.
My second choice is Spirax-Sarco (LSE: SPX), which provides products and services for the control and efficient management of steam and industrial fluids. It has avoided recent profit warnings in the capital goods sector, and the firm claims recent economic weakening have not hit demand. It is a world leader in a fragmented but growing industry, with a market share equal to the next three or four largest competitors combined.
At some stage this firm could even be an attractive acquisition for a large corporation looking at their own anaemic growth prospects and wanting to buy GDP plus' growth. It has plenty of exposure to faster-growing economies in the Asia Pacific region, which continue to see double-digit growth rates. The shares only offer a 2.75% dividend yield, but this should grow strongly for years to come, given the firm's solid balance sheet and net cash of almost £50m.
Aviation services company BBA (LSE: BBA) is the third stock I like. Its core business is serving the US corporate jet market, which historically has exhibited secular growth. We had an encouraging meeting with management a little while ago and, despite some recent softness in demand, they remain upbeat.
I see the shares as a US GDP proxy any pick up in the US economy should feed directly through to increased businesses confidence and boost the number of hours flown. The shares currently yield over 4% and this should grow steadily over time.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Somero: trading this overlooked bargainFeatures Mechanical-screed maker Somero dominates its niche and is attractively valued. Matthew Partridge picks the best way to trade it.
-
How to find big profits in small companiesCover Story The small- and micro-cap sectors are risky and volatile. But with careful research and patience, investors could make huge gains. Matthew Partridge explains how to find the market’s top tiddlers.
-
The hidden gems on Aim, London's junior marketFeatures Aim, London’s junior market, is risky – but you can find solid stocks at low prices. Scott Longley reports.
-
Is Aim finally coming of age?Features The Aim market of mostly smaller companies has traditionally been seen as a bit of a backwater. Is it time to change that view? Matthew Partridge talks to Paul Latham and Richard Power of fund management company Octopus.
-
Three Aim-listed firms that will thrive in a post-Brexit worldOpinion Matt Tonge and Victoria Stevens of the Liontrust UK Smaller Companies Fund pick three Aim-listed firms that will survive Brexit turmoil.
-
Fetch! The Chinese small-cap stocks to buy in the Year of the Dog
Opinion Each week, a professional investor tells us where she’d put her money. This week: Tiffany Hsiao of Matthews Asia selects three Chinese small-cap stocks with exciting potential.
-
Small and mid-cap stocks with big potential
Opinion Professional investor Guy Anderson of the Mercantile Investment Trust selects three small and medium-sized firms with promising prospects that the market has missed.
-
Get cheap, reliable growth from smaller companiesFeatures One of the most reliable long-term investment trends is the long-term outperformance of smaller companies over blue chips. Max King picks some of the best ways to buy into this growth.
