RentGuarantor Holdings (Aim: RGG) has been given a boost by the Renters' Rights Act, one of the most significant pieces of legislation to hit the UK rental market in decades. It's only been in force since the beginning of May, but the Act is already driving a complete rewriting of the market.

Under the new law, fixed-term tenancies have been abolished, “no fault” evictions are no longer allowed, rents can only be raised once a year, and during the first 12 months of the tenancy, the landlord cannot serve notice to move back into the property or sell it. These changes, far from protecting tenants, have forced landlords to become more defensive.

The changes have made it much harder for landlords to evict tenants who can't or won't pay their rent, piling pressure on a system that's already on the verge of collapse. According to professional body Propertymark, due to lengthy court backlogs, the average time from claim to repossession has risen to more than 68 weeks, compared with just over 20 weeks in 2019. At the point of eviction, average unpaid rent stands at £12,708 across England and Wales and £19,223 in London.

Landlords have responded by demanding that tenants provide a guarantor before they agree deals. According to multiple reports, around 40% of landlords now require guarantors for both new and existing tenants. This is where RentGuarantor comes into play.

How RentGuarantor works

The firm is a rare example of how effective London's capital markets can be for early-stage growth businesses. Founded in 2016 by Paul Foy, a property investor since the mid-1980s, RentGuarantor does what it says on the tin – guarantees rents. Tenants pay a fee (£20) for an initial background check and the firm uses tools such as Open Banking and AI to calculate how much the tenant can afford and if they're able to maintain payments. If the tenant passes the check, which should be completed the same day, RentGuarantor can offer the guarantee.

This incurs a further fee, usually around three to five weeks' rent, depending on the underlying risk profile. When the tenant has paid and signed, RentGuarantor provides a legally binding guarantee of rental payments to the landlord or letting agent. Unlike traditional guarantors, such as parents or grandparents, this provides an extra layer of protection for the landlord. RentGuarantor passes the risk to a panel of insurers while collecting the origination fee and remaining the key point of contact for customers.

Five years of RentGuarantor Holdings on the London market

After spending five years building the foundations, Foy and his team took the company public in 2021. It listed on the Aquis exchange in 2021 with hardly any revenue and moved to the Aim junior market in the second half of 2025. The new listing raised £4 million in 2025 to support its growth efforts and it ended the year with revenue of £2.4 million, up 87% year-on-year. The founder has remained a key shareholder with a 30% stake.

RentGuarantor hasn't charged into the market seeking break-neck growth and drawing down shareholders' goodwill to fund spending. There's a very tight grip on marketing spending, which totalled just £200,000 in 2024 and £500,000 in 2025 against revenue of £2.4 million, or around £165 per contract (based on the year-end figure of 3,123 contracts). The focus over the past five years has been on getting the offering right and putting in place the right technology and team to scale up effectively.

The firm has now reached the point where this hard work is beginning to pay off. In May, the month the Renters' Rights Act came into force, RentGuarantor recorded a 115% increase in unaudited revenue compared with the average for the first four months of the year. Moreover, revenue per contract was up 24%. The group also recorded its first positive monthly Ebitda earnings since its admission to trading – well ahead of the board's expectations.

The challenges facing RentGuarantor Holdings

The key risk for the group here will be scaling up without falling flat on its face, as so many firms do when they encounter a sudden surge in demand. The Act is driving demand for guarantees, but it'll also lead to a surge in disputes.

To help, RentGuarantor is looking to AI and has an expert on the matter in its orbit. The AI strategy is being led by Dave Cliff, a non-executive director and professor of computer science at the University of Bristol. He previously worked at MIT's artificial intelligence laboratory, so unlike many other businesses, which seem to be turning to AI with little actual understanding of the benefits, drawbacks and costs, RentGuarantor looks well-placed to exploit the benefits of the technology fully. Management estimates the group can process 20,000 contracts per year, but that will rise to 100,000 with AI's help.

According to house broker Shore Capital, RentGuarantor could agree 7,000 contracts this year, 13,000 in 2027 and 62,000 by 2030. Revenue could hit £6 million in 2026, rising to £19 million by 2028 and £54 million by 2030. Even if it achieves this lofty growth, it would still leave the group at only 3.4% of the potential total market.

Now that the firm is essentially self-funding, there's scope for marketing spending to rise. Shore Capital expects a ten times rise by 2030, easily covered by the firm's 79% gross margin. The broker has pencilled in adjusted earnings per share of 3.6p by 2028. As with all early-stage firms, these forecasts are likely to be wrong, but they illustrate the growth potential if the firm manages to scale up over the next 12 months. This is a high-risk play, but one with a huge and growing market to support it.

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Software Circle (Aim: SFT) is a particularly interesting company at the out-of-favour smaller end of the UK stock market, where years of outflows from small-cap funds have left hundreds of the smallest companies largely ignored – thus creating opportunities for investors. It is listed on the junior market and is attempting to build long-term shareholder value by acquiring a collection of niche software businesses. It's early days, but the firm has many attractions.

Software Circle buys mature software businesses operating in niche corners of the economy, such as care homes. These are typically firms with loyal customers, recurring revenues and founders nearing retirement. The software itself is often dull – and that is precisely the attraction.

Software Circle started out as a printing business that struggled with costs and operational headaches. Buried inside the group, however, was a profitable software platform called Nettl Systems. The management decided to abandon the old printing model and sold manufacturing operations. The balance sheet was cleaned up and the remaining cash redirected into a new strategy focused entirely on software acquisitions.

Software firms generally require far less investment than manufacturers. Once developed, software can often be sold repeatedly at very high margins. Better still, customers tend to stick around for years. Software Circle now focuses on the vertical market software – specialist products designed for narrow industries or professions. These markets are rarely exciting, but they can be extremely profitable.

Many small businesses rely on highly specialised software to run everyday operations. Replacing them can be disruptive and expensive. As a result, customers rarely switch providers. The software they use represents only a tiny proportion of overall costs, which gives providers pricing power. Even steady annual price increases are unlikely to cause many complaints.

This combination of recurring revenue, low customer turnover and pricing power has created some exceptionally successful software businesses. Software Circle is buying lots of these businesses across the fragmented UK and Irish market for software companies.

Software Circle's acquisition strategy

The company's acquisition strategy is refreshingly conservative and management maintains an internal database of potential acquisition targets across the UK and Ireland that numbers more than 4,000. Importantly, management is disciplined on price and generally refuses to pay more than seven times adjusted earnings for acquisitions. Across the software businesses acquired so far, the average purchase multiple has been closer to six times. That matters because buy-and-build strategies often fail when acquirers become too aggressive.

The latest interim results suggest the strategy is beginning to gain traction. Revenue rose 15% to £10.2 million, while subscription income now accounts for roughly three-quarters of group sales. That recurring revenue mix is important because subscription software businesses tend to be more predictable and resilient than project-based technology firms. Underlying profitability also improved while central overheads remained tightly controlled. The education-software segment performed particularly well, delivering organic growth of 17%.

The statutory accounts still show an operating loss, but this largely reflects accounting charges linked to acquisitions rather than weak underlying trading. Cash generation gives a clearer picture of the business. Operating cash flow continued to improve and management says its portfolio of software assets is generating returns on invested capital of roughly 25%. For a serial acquirer, that is a highly encouraging figure.

Software Circle is also now large enough to access bank financing. This will give the firm greater flexibility to continue acquiring businesses without returning to shareholders. Management ultimately hopes the business will become self-funding, with recurring cash flows supporting future acquisitions. If achieved, that could create a powerful long-term compounding effect.

Another encouraging feature is strong alignment with shareholders. The executive team is unusually lean, with only a handful of senior staff operating from a modest office in Manchester. Long-term incentives are tied to shareholder returns and management options encourage a longer-term mindset.

The shareholder register is similarly supportive. German investors connected to Chapters Group (another European software acquirer) hold a large stake in the business. Around 10% is owned by Sun Mountain, the investment vehicle associated with Will Thorndike, an investor with a famously long-time horizon.

None of this removes the risks. Software Circle remains a very small firm operating in an illiquid part of the market. Acquisition strategies can go wrong if management overpays, struggles with integration, or takes on too much debt. The shares are also unlikely to suit investors seeking quick returns or dependable income.

Even so, the ingredients for an attractive long-term compounder are there. The firm operates in a fragmented market, focuses on sticky recurring revenues, appears disciplined on valuation and is building access to cheaper acquisition financing. Software Circle is attempting to build a UK-listed version of the niche software compounders that have worked extraordinarily well in North America.

The business is still small and far from proven. However, in a neglected corner of the UK market, it may be one of the more interesting stories developing.

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In times of uncertainty, it is comforting to have in your portfolio some substantial, growing companies with leading market shares in stable sectors such as healthcare. A good example is Intuitive Surgical (Nasdaq: ISRG), the global leader in robotic surgery. Intuitive Surgical has more than 11,000 of its da Vinci robotic surgery systems and over 1,000 of its Ion robotic endoluminal biopsy/minor procedure systems installed in hospitals in 70 countries worldwide. The surgeon controlling one of these systems sits at a console with a magnified three-dimensional view of the operating site and controls instruments that have a greater range of motion than the human hand.

Intuitive Surgical has a 60%-70% market share globally of the installed base of robotic surgery systems and a share of about 80% of general soft-tissue systems (excluding niches such as orthopaedics). The market for robotic surgery is growing from a predicted $16 billion in 2026 to $64 billion in 2035, a compound annual growth rate (CAGR) of 16.5%.

Intuitive Surgical has a wide moat

Intuitive Surgical has four features that amount to a wide moat protecting its dominant market share. First is its substantial investment in the research and development of new products – more than $1.3 billion in 2025 – including fifth-generation da Vinci systems that are now in production. Second is its set of more than 4,500 patents protecting its high-tech systems from being copied by competitors.

Third is its unparalleled surgical database gained from more than 20 million surgical procedures carried out using da Vinci systems. This database is used continuously to improve the AI and software incorporated into Intuitive's systems.

Finally, there's Intuitive's da Vinci robotic surgery training scheme, which has trained more than 66,000 surgeons around the world. Surgeons trained on da Vinci systems who plan to move to a new hospital naturally ask that hospital to install a da Vinci system.

Additionally, there are three factors driving further growth. The first is the advantage of robotic surgery over conventional surgery; it is minimally invasive (keyhole) surgery, which ensures shorter hospital stays and improved patient outcomes (for example, fewer complications). That is why robotic surgery is growing at a CAGR of 16.5% .

The second is the application of robotic surgery to more procedures ever since the first two procedures – gall bladder removal and prostatectomy – were approved by the US regulator in 2000. For example, the early 2026 regulatory approval given to da Vinci 5 systems for nine different cardiac procedures clears the way for 160,000 minimally invasive heart procedures in the US and Korea alone.

The third is the extension of Intuitive's reach to more hospitals and more countries. A country is usually served by distributors initially, but as business grows Intuitive starts to serve customers directly to provide a more comprehensive service. In March 2026, Intuitive began direct operations in Italy, Spain, Portugal and Malta by acquiring the existing distributors there. This is likely to result in faster growth.

Intuitive Surgical's 2025 results show revenues up by 20.5% to $10.065 billion. Pre-tax profit was $3.31 billion, up 23.8%. Diluted earnings per share for 2025 was $7.87, up 22.6%. The balance sheet is strong, with more than $9 billion in net cash. Strong growth continued in the first quarter of 2026, with revenue up 23% compared with the first quarter of 2025. Keep buying.

How Intuitive Surgical has performed

This base is important as about three-quarters of revenue comes from instruments, accessories and services. This revenue increases as the number of surgical procedures carried out on the machines rises. In the first quarter of 2026, revenue was $2.77bn, up 23% on the same period the year before, with da Vinci procedures up 16% and Ion procedures up 39%. And the recent approvals for nine new cardiac procedures using da Vinci 5 could add another 160,000 procedures in the US and Korea alone.

The installed base rose with new sales – 431 da Vinci systems and 52 Ion systems were placed in the first quarter of 2026. The total for da Vinci systems included 232 da Vinci 5 systems compared with 147 in the same period last year. The new direct sales organisation for southern Europe should enhance sales there.

Intuitive Surgical expects a gross profit margin of 67.5%-68.5% of revenue compared with 67.6% in 2025 (on a non-GAAP basis). This includes the impact from tariffs of 1% of revenue. Given that Intuitive has a history of under-promising and over-delivering, this implies that the ex-tariff margin is likely to rise.

Most of the 38 analysts covering the stock rate it a “buy” (19) “overweight” (6), with 11 opting to “hold”. The forward price-earnings (p/e) ratio for 2027 at the recent price of $420 is 36.7 falling to 31.6 for 2028. The average one-year target price is $582. There is no dividend, but the firm's strong financial position enabled it to spend $2.3 billion on share buy-backs in 2025, which supported the share price. This is a profitable growth stock worth adding to your portfolio.

Dr Michael Tubbs owns shares in Intuitive Surgical

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Bank stocks were hit hard by the 2008 financial crisis. Years of heavy borrowing left many banks exposed, and some of the most trusted names collapsed. Investors faced huge losses as governments stepped in with taxpayer-funded bailouts. In response, regulators introduced strict new rules to prevent a repeat. These measures weighed on profits for years, but the sector has now come through that difficult period. Today, banks are much safer than they were before the crisis. Big investors have returned, helping to push up share prices; some have even tripled in recent years. As valuations edge back towards more normal levels, an important question remains. Do these high-yielding stocks still deserve a place in a portfolio, or have the easiest gains already been made?

Bank stocks’ wilderness years

For more than a decade, the banking sector struggled to regain the confidence of investors. Most professional fund managers suffered significant losses in the 2008 crash and subsequently found the industry difficult to navigate. Investors discovered they lacked understanding of complex balance sheets. Consequently, their appetite for banks' shares vanished for a generation. Even today, many professional investors remain wary because they find the internal mechanics of a global bank difficult to decipher.

While investors remained cautious, regulators rebuilt the global financial architecture. There has been a substantial increase in banks' capital, the cushion that stands between bank assets and insolvency. Core capital ratios, which give the size of this cushion expressed as a percentage of the bank's total risk, were as low as 4% pre-crisis; today, they often exceed 15%. In the UK, the Vickers Report mandated a separation between retail and investment banking operations. This altered the nature of the business and kept valuations low.

Jamie Dimon provided the first credible signal that this era of stagnation was ending. In February 2016, the chief executive of JPMorgan Chase invested $26 million of his own money into his bank's stock. He purchased the shares at roughly $56 per share, which aligned with the company's book value at the time. Dimon realised that the regulatory clean-up was largely complete. He saw an institution that was well-capitalised and undervalued, yet still priced as if it was ruined. His investment marked the start of a decade-long rally that eventually saw the stock price rise more than fivefold. It would take several more years and a radical change in the interest-rate environment for the rest of the market finally to reach the same conclusion.

The return of inflation

The stagnation of the previous decade ended with the return of inflation. Central banks tackled inflation by raising interest rates from near-zero to 5% and, with that, the fundamental engine of banking profit returned to health. This engine is the “net interest margin” – the difference between the interest a bank pays to its depositors and the interest it receives from its borrowers. For years, the industry struggled to generate a decent return in a world where interest rates were near-zero. The shift to higher rates boosted profits.

How much banks paid their depositors played a big role in this windfall – that is, how much of a central-bank rate rise was passed on to savers. When rates went up, banks were slow to increase interest on current accounts. At the same time, they quickly raised the cost of mortgages and business loans. This delay helped to boost profits. In theory, this rise in profits should only be temporary. But it made it easier for a bank to manage future earnings through a “structural hedge”, allowing them to lock in interest rates for several years and smooth profits as rates fall. The result is a more stable and predictable income stream. This improved profitability has transformed how banks manage their capital. After a decade of hoarding cash to satisfy regulations, they are now paying a lot back to shareholders via a mix of dividends and share buybacks. Total shareholder yields, combining dividends and buybacks, now often exceed 10% a year.

Strong recent results from the biggest banks have cast doubt on the idea that upstart digital challenger banks will disrupt them. While the challengers achieved high user numbers and launched attractive software, they lacked the massive and low-cost deposit bases that the traditional banks enjoy. The incumbents used their superior cash flows to adopt the best elements of the digital revolution, investing billions in their own platforms while maintaining the trust and regulatory licences required to dominate high-value lending, such as residential mortgages.

The established banks were also better able to absorb the higher costs of regulation and cybersecurity. For a smaller challenger bank, the compliance burden is often a significant percentage of its total revenue. For a giant bank, it is a manageable operational expense. Some challenger banks, most notably Revolut, have grown to a large size, but the biggest effect of the new banks is a forced modernisation of the older ones.

This combination of rising margins, disciplined shareholder returns and the resilience of the established model has restored the sector's momentum. The banks have demonstrated that they are no longer just safe utilities. They are profit-seeking enterprises with the capacity to deliver high yields to patient investors. The current challenge for investors is to identify which institutions can sustain this performance as the interest-rate cycle matures. The market has recognised the recovery, but the divergence between the winners and the laggards suggests that selection remains critical.

How to navigate the banking market

There are at least three distinct types of banking. Retail banking is the familiar world of the high street, managing residential mortgages and personal savings for millions of customers. Corporate banking offers services to the commercial sector, extending credit to firms and facilitating international trade. Investment banking is a more volatile endeavour that involves mergers, debt issuance and investing in the capital markets. The latter depends on the shifting appetites of the financial markets, which introduces a level of unpredictability that many investors find unsettling. The market typically rewards the steady stability of retail lending with a higher multiple, while it views the inconsistent profits of investment banking with caution.

The main concern for investors is the progression of the interest-rate cycle. Banks generally benefit from rising interest rates because the income they generate from loans increases more quickly than the interest they pay to depositors. However, as rates plateau this advantage often diminishes. Customers eventually move their money from low-interest current accounts into higher-yielding fixed-term products. This shift increases the bank's cost of funding and can lead to a lower profit. Asset quality is another area of vulnerability. Extended periods of high borrowing costs can put pressure on both households and businesses, leading to a rise in loan defaults. The commercial real-estate sector is currently viewed with particular caution, especially in markets where office and retail property valuations have fallen. If a bank has a high concentration of lending in these areas, it may be forced to raise its loan-loss provisions, which hurts profits.

Political and regulatory risks are also a factor. Governments may consider windfall taxes on high bank profits during hard times. Regulators often introduce new rules on capital requirements or consumer protection. Such measures increase operational costs and limit the amount of cash that banks are able to return to shareholders through dividends and buybacks.

Finally, structural shifts in the financial system present long-term challenges. The rise of non-traditional lenders and private credit markets has introduced new competition for corporate lending. Furthermore, the development of digital currencies could alter the traditional deposit-taking model. If consumers begin to hold significant portions of their wealth in digital sovereign currencies rather than bank accounts, the industry's funding costs could rise substantially.

To assess a bank accurately, investors must look past the price-to-earnings ratios used for ordinary companies. Instead, they prioritise the price-to-tangible-book-value ratio. This metric compares the share price against the net value of the bank's hard assets, once intangible items such as goodwill or brand value are stripped away. It provides a realistic view of the bank's worth if it were liquidated today. A bank trading at a discount to this figure suggests that the market believes the management is failing to earn its way, or that the assets on the balance sheet are not as safe as they appear. Conversely, a premium indicates that investors expect the institution to generate superior returns for years to come. In this new higher-interest-rate environment, investors must distinguish between high-quality cash machines and potential value traps.

The efficiency leaders of the banking industry

JPMorgan Chase (NYSE: JPM) remains the undisputed benchmark for the global banking industry. It is the largest bank in the world by a significant margin and is valued at more than double its nearest competitor. This scale allows the firm to simultaneously dominate both investment banking and retail lending. Under the leadership of Jamie Dimon, the bank has maintained a return on equity of nearly 16% while investing billions into its technological infrastructure. While the valuation is high compared with peers, its operational dominance and so-called “fortress balance sheet” provide a unique safety net. It is the go-to investment for those who wish to gain exposure to banking.

Lloyds Banking Group (LSE: LLOY) is a direct bet on the British economy. Unlike its more international rivals, Lloyds Banking Group generates the majority of its profit from domestic retail and commercial lending. Its net interest margin has improved significantly in recent years as it benefited from the shift in interest rates. With a price-to-tangible-net-asset-value ratio of 1.5 times and a healthy return on equity, the bank has become a favourite for dividend-seekers. Its aggressive share buyback policy continues to support the shares even during periods of domestic economic uncertainty.

HSBC (LSE: HSBA) has focused its efforts on the high-growth markets of Asia, which now drive the majority of its earnings. The bank trades at 1.7 times tangible net asset value and delivers a return on equity of 13.7%. For the income investor, the appeal lies in consistent dividends and regular share buybacks. However, the heavy exposure of HSBC to Hong Kong and mainland China remains a double-edged sword. These regions offer superior growth potential, but also introduce geopolitical risks.

NatWest Group (LSE: NWG) has completed its journey from a government-controlled institution back to a fully private enterprise. Many investors will remember the bank as the Royal Bank of Scotland, which rebranded to distance itself from the reputational damage suffered during the 2008 crisis. The bank has shown remarkable profitability recently, with a return on equity approaching 20% in its most recent results. The shares trade at a more modest 1.3 times tangible net asset value, offering an attractive entry point for those seeking exposure to banking. Its focus on digital efficiency has allowed it to maintain a competitive edge.

The recovery candidates

Barclays (LSE: BARC) trades at a discount of 0.8 times to tangible net asset value, despite delivering a return on equity of more than 10%. The market remains cautious regarding its large investment-banking division, which requires significant capital and produces volatile returns, but management recently vowed to return substantial capital to shareholders by the end of this year. If the bank can prove its investment arm is no longer a drag on the retail business, the potential for a valuation re-rating is substantial. It remains an interesting candidate for those looking for value and who are comfortable with higher risk.

UniCredit (Milan: UCG) has emerged as one of the most efficient banks in the eurozone. Under a disciplined management team, the Italian giant has achieved a return on equity of nearly 17%, far outstripping many of its domestic and international peers. It trades at 1.5 times tangible net asset value, reflecting a market that has finally begun to appreciate its streamlined operating model. By aggressively cutting costs and returning capital, UniCredit has proved that a European bank can thrive without the tailwinds of a massive domestic mortgage market.

Deutsche Bank (Frankfurt: DBK) has historically been the sick man of European banking. After years of losses and scandals, the bank has finally returned to consistent profitability, posting a return on equity of 9.2%. Reflecting this, it remains one of the cheapest major banks in the world, trading at just 0.7 times tangible net asset value. The discount is due to its poor reputation, but the structural improvements in its corporate and private banking arms are undeniable. For the patient investor, it represents a bet that the final stages of its turnaround will lead to a revaluation.

The specialists

BNP Paribas (Paris: BNP) is the closest institution Europe has to a diversified American-style giant. It operates a massive corporate and investment bank alongside a stable retail presence across several countries. Trading at 0.9 times tangible net asset value, it offers a diversified stream of earnings and a healthy dividend yield. The bank has successfully used its scale to gain market share as American rivals pulled back from certain European markets. It is a solid choice for those who want exposure to European growth without the concentrated risk of a single-country lender.

Banco Santander (LSE: BNC) has exploited its unique geographic footprint, spanning from Spain to Brazil and the US, to protect itself from regional economic shocks. The bank trades at 1.7 times tangible net asset value and delivers a return on equity of more than 12%. Its diversified model means that when the European economy slows, its Latin American operations often provide a profitable cushion. This geographic spread is its greatest strength, although the complexity of managing such a diverse empire often leads to a slightly lower valuation than its simpler peers.

Standard Chartered (LSE: STAN) provides a unique way to gain exposure to the emerging markets of Asia, Africa and the Middle East. Unlike HSBC, it has a smaller retail presence and focuses more heavily on corporate and institutional banking. It trades at 1.1 times tangible net asset value and has recently exceeded its own profitability targets. It is a primary beneficiary of the rise in intra-Asian trade and is well-positioned to benefit from the ongoing economic development in its core markets. It remains an attractive option for investors looking towards the emerging economies.

Bank of America (NYSE: BAC) is the second-largest lender in the US and serves as a bellwether for the US consumer. It trades at 1.8 times tangible net asset value, a premium that reflects its massive deposit base and its leading position in digital banking. While it is highly sensitive to US interest rates, its diversified earnings from investment banking and wealth management provide stability. It is often seen as a more conservative alternative to JPMorgan Chase for those who want exposure to the American financial system.

Goldman Sachs (NYSE: GS) remains the premier investment bank in the world. Unlike the universal banks, Goldman Sachs is heavily weighted towards merger advice, trading and asset management. This makes its earnings more volatile and dependent on the health of the financial markets. After a period of strategic drift into consumer banking, the firm has refocused on its core strengths. It remains an option for those trying to gain exposure to pure investment banking rather than more traditional lines of business.

The best bank stocks to invest in now

The banking sector has transitioned from a source of risk to a reliable engine of shareholder returns. For those seeking stability, Bank of America offers a good balance sheet and direct exposure to the US economy. Its historical resilience provides a degree of security for investors prioritising long-term capital preservation. Barclays represents a more opportunistic choice. It remains priced at a discount compared with its domestic peers, and the successful execution of its current strategy should allow this valuation gap to narrow, rewarding patient holders. Finally, Standard Chartered serves as a unique vehicle for those desiring exposure to emerging markets. As a UK-listed entity, it provides a regulated gateway to high-growth regions in Asia and Africa.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Danaher (NYSE: DHR) has generated investment returns of around 200,000% over the last 40 years, outpacing the broader stock market by several multiples. The firm remains less famous than the major technology giants, but its record of creating value for shareholders ranks among the best in the world. Since its move into manufacturing in 1984, the firm has turned a small sum into a fortune by mastering a disciplined system of buying and improving companies.

This firm shows how a steady focus on process can change even the most unpromising assets into a strong competitive advantage. It moved from its early days as a failing property firm to its current status as a leading healthcare-equipment provider when the founders shifted from corporate raiding to a more patient model of long-term compounding. To understand the current success of this business, one must first look back at the lessons learned during its high-stakes beginnings.

Danaher began as DMG, a real-estate investment trust that by the early 1980s had fallen on hard times. In 1984, two ambitious young brothers, Mitchell and Steven Rales, bought and repurposed the entity as a vehicle for aggressive dealmaking. The brothers used high-yield debt and the trust's accumulated tax losses to buy unloved industrial companies and shield profits from the taxman. At this stage, the company operated as little more than a machine designed to make a fast return on borrowed money. In 1985, the strategy changed after a failed bid for the Scott Fetzer Company. This attempt at a hostile acquisition turned into a public clash between two different styles of investing. The Rales brothers offered a significant sum, but the owners preferred a lower, friendly offer from Warren Buffett – the legendary CEO of Berkshire Hathaway. They chose the lower offer because they preferred his plan for the company over the aggressive tactics of the Rales. It was like a homeowner choosing a buyer who plans to raise a family in their beloved house rather than an investor who intends to turn it into a block of flats.

Danaher's lessons from Warren Buffett

This unsuccessful bid taught the brothers that hostility and excessive debt often destroyed the very value they wanted to capture. This loss prompted a new way of thinking and they began to pursue businesses with a durable competitive advantage that they could hold for decades. This shift occurred during a fishing trip that the Rales brothers took at Danaher Creek in Montana. The name change to that of the river reflected a move away from asset-stripping. The business began to pivot from being a collection of random businesses into a conglomerate of niche plays. By targeting companies with dominant positions in small markets, Danaher applied a consistent system to drive growth over many years. It remained important to secure attractive deals, but the emphasis shifted away from financing concerns towards expanding profit margins and strengthening the competitive positions of newly acquired businesses.

By 1990, the brothers completed the transition of Danaher into a professional investment machine. Mitchell and Steven Rales stepped back from executive roles to become board members, acting as stewards of the company rather than its daily managers. By hiring professional leaders to run operations, the founders focused entirely on the broader investment strategy. This enabled Danaher to evolve into a platform designed to acquire high-quality businesses and manage them with care. The strategy was set, but the company required a rigorous process to ensure these new acquisitions improved after the purchase.

Danaher solved this operational challenge through the Danaher Business System, or DBS. This framework serves as the organisation's central guiding operating system. In the late 1980s, the leadership looked to Japan to understand why Toyota outperformed American car companies. They discovered the concept of kaizen, or continuous improvement. Ironically, Japanese corporations had adopted American business styles in developing kaizen, so, in a sense, Danaher was merely repatriating US ideals. While other Western firms viewed this as a tool for the factory floor, Danaher's bosses adopted it as a universal management philosophy. They applied the concept to every corner of the business, from factories to the head office.

The system rests on four central pillars: people, plan, process and performance. This framework mandates a culture where associates spend most of their time on execution rather than on analysing results. This approach prevents the common corporate trap of “analysis paralysis”. One important component is hoshin kanri, or “compass management”. This ensures every part of the business points toward the same goal. It aligns the board's strategy with the daily tasks of every employee to ensure everyone pulls in the same direction.

DBS operates as an underpinning philosophy embedded in the way that every unit runs, rather than simply a manual or a newsletter that people might ignore. Even the board members regularly spend entire weeks leading kaizen events on factory floors to identify and eliminate waste. By focusing on the place where the work happens, known in Japanese as gemba, the firm stays grounded in reality. This commitment to process ensures that every acquisition quickly improves to generate superior margins and predictable growth. This internal engine has allowed the business to transition between industries without losing its competitive edge.

Danaher has moved from purely industrial businesses towards areas with long-term competitive advantages, specifically life sciences and diagnostics. The business operates a “picks-and-shovels” model, choosing the firms that provide the essential tools for research rather than taking the risks associated with drug development. If a pharmaceutical company fails to bring a new cure to market, they can lose everything. Danaher sells the filters and resins that laboratories need regardless of which specific drug wins approval. This creates a steady revenue stream tied to the broader growth of global healthcare.

The biotechnology branch drives much of the growth. Through its brands Cytiva and Pall, the firm dominates the production of monoclonal antibodies. These complex medicines treat diseases such as cancer and migraines, and were vital during the pandemic. They also feature in everyday laboratory testing, most notably in pregnancy tests. The equipment is specified into the drug manufacturing process itself. Once a medicine wins regulatory approval, the specific filters and components used to produce it are locked in. Switching to a rival supplier would require a long and costly review of the entire factory process. The diagnostics division offers a similar edge. This creates a high degree of certainty for future sales. It moves the business away from the unpredictable cycles of heavy industry towards a more reliable stream of income and this focus on non-discretionary health trends has lowered the long-term risk profile of the business.

A professional acquisition machine

Danaher functions as a professional acquisition machine, which avoids buying businesses simply for the sake of growth. Instead, it follows a rigorous plan to identify markets where it can create a sustainable competitive advantage. These acquisitions fall into two main categories: platforms representing foundational entries into vast new industries that serve as a base for future expansion; and bolt-ons, or smaller firms designed to fill specific technical gaps. The group merges these smaller companies into existing divisions to remove overheads and share technology.

A high level of discipline dictates the price paid for these assets. Every potential deal is measured against a strict financial goal, where the business must produce a 10% return on invested capital by its fifth year. Management specifically looks for businesses with high gross margins, but low operating profits. A high gross margin suggests the product is vital to the customer. A low profit margin suggests the business is being run inefficiently. This gap represents the opportunity for improvement. By applying the Danaher Business System, the firm often doubles the margins of a new arrival within three to five years.

The DBS Office manages this transformation. This team of internal specialists helps new staff adopt the company culture. This requires employees to spend 70% of their time defining a problem and only 30% on the solution. This ensures the team fixes the root cause of an issue rather than just the symptoms. This explains the success rate, which far exceeds the industry average.

The business has faced setbacks during its growth. The acquisition of Cepheid, which became famous for producing rapid Covid tests, succeeded by scaling a niche provider into a global leader in diagnostics. However, other areas proved more difficult. The bioprocessing inventory glut of 2023 and 2024 presented a recent challenge. During the pandemic, customers over-ordered supplies to avoid shortages. This led to lower sales in the post-pandemic world as those stocks were used up. The firm was caught off-guard by the speed of this shift, leading to frustration among some investors.

Learning from mistakes made internally has also shaped the company. In the past, subsidiary managers made mistakes by focusing too much on specific tools of improvement while losing sight of the broader strategy. These managers would lead kaizen events to fix minor floor issues without ensuring they aligned with the long-term plan. This led the parent organisation to refine its “strategic compass” to ensure every change serves a clear purpose. These challenges forced Danaher to become more transparent and to improve its forecasting to prevent a repeat of such supply-chain shocks.

The firm is currently positioning itself at the frontier of genomic medicine. By using a platform approach, the group aims to standardise the way new cures are made. This is often compared to a burrito, where the outer wrap remains the same while the filling changes. This method could significantly lower the time and cost of treating rare diseases. By integrating artificial intelligence, the firm is creating a digital backbone for the industry. Furthermore, the acquisition of Masimo, a leader in pulse oximetry, allows the firm to capture vital data directly from the patient at the hospital bedside.

Danaher is a much larger organisation today than it was in its industrial beginnings, suggesting that a repeat of the 200,000% return over the next 40 years is improbable. Nevertheless, it remains one of the best businesses in the world at identifying, buying and managing assets. Its unique culture and the rigorous application of its business system set it apart. The astronomical gains of the past may be behind it, but the firm remains an excellent choice for those seeking a high-quality investment.

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At Janus Henderson's North American Income Trust (NAIT) we focus on US income stocks – quality franchises that consistently generate cash and have disciplined capital-allocation policies focused on investment in the business to sustain competitive advantage while paying a progressive, covered dividend. Surplus cash beyond this may be used for bolt-on mergers and acquisitions, or to repurchase shares when the stock is dislocated from long-term assessments of fair value. The NAIT has a strong record of paying a progressive dividend and growing revenue reserves since the fund's inception in 2012 (it was converted from the Edinburgh Tracker Trust). The average dividend in the portfolio is 3% and dividend growth averages an attractive 6%-7%.

Our revenue reserves can comfortably cover one year of payouts and may be used if needed. However, there was only one small dividend cut during the 2020 pandemic period and none since then. Many UK investors may not automatically think of US income stocks, but there are several that offer attractive and growing dividends. The US has a history of superior earnings growth, which can often translate into higher dividend growth, too.

How to gain exposure to US income stocks

Dell (NYSE: DELL) is a technology infrastructure company uniquely positioned to grab a slice of the next wave of corporate spending on AI applications. Its scale, global supply chain and deep relationships with customers from the private and public sectors make it a preferred supplier of AI servers and data-storage technology. As enterprises move from experimentation to deployment, Dell will benefit from recurring technology update cycles. Growing profitability is supported by the company's shift toward higher-value technology infrastructure and its disciplined cost management. Debt has been cut and capital returns support the yield. We believe Dell's valuation fails fully to reflect the durability of demand and the firm's exposure to capital expenditure on AI.

Johnson & Johnson (NYSE: JNJ) is another US income stock that offers a rare combination of earnings quality and durable growth. Following the spin-off of its consumer-health division in 2023, it is a focused, innovation-driven pharmaceutical company and a leader in medical technology that should comfortably deliver mid-single-digit revenue growth. It has a diversified drug pipeline, which reduces risk, and its franchises in oncology, immunology and cardiovascular treatments are best-in-class, which will support cash flows in the long term. The medical-technology sector is growing strongly and the worst seems to be behind the company when it comes to legal issues. This is restoring investors' confidence and valuations. With a strong balance sheet, consistent free cash flow and a long record of dividend growth, Johnson & Johnson remains a core holding in volatile markets.

Morgan Stanley (NYSE: MS) is a global leader in the capital markets. Its earnings have become more resilient following a strategic pivot toward wealth and investment management, which generates stable, fee-based revenues. These annuity-like income streams provide downside protection while preserving upside exposure to appreciation in the markets and net asset inflows. The firm's strong capital position is enabling it to buy back shares and grow dividends. We believe Morgan Stanley's improved position will deliver impressive gains tied to long-term growth in the financial markets.

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“Nothing is as complex as cancer, which is aptly called the emperor of all maladies,” says Servaas Michielssens, head of healthcare at asset manager Candriam. The emperor has been expanding his dominion. The number of cancer cases has been on the rise recently. That's partly due to populations ageing, but is also a result of the fact that they're getting fatter. Worryingly, the average age of onset of some conditions, such as colorectal cancer, is getting younger and younger as a result, says healthcare investor Paul Major.

The earlier you catch the cancer, the better chance of survival and the less money that healthcare systems have to spend treating patients, says Moritz Dullinger of Pictet Asset Management. There is “a tremendous amount of excitement” among researchers about work to find new ways to detect cancer early. Cancer diagnostics is expected to improve in the years ahead, as Joseph Cordi, co-manager of the Impax Asset Management US Large Cap Strategy fund, points out.

Cancer diagnostics – “liquid biopsies” showing big promise

Most systems, especially in the US, are “set up for sickcare, not healthcare”, says Maryann Selfe, a global wealth and investment strategist and author of The Billion Dollar Blindspot: Why Women's Health Is the Investment Opportunity of Our Time. Diagnosis is therefore largely “reactive”, with the responsibility placed on patients to go and see their doctors when they have symptoms. But for many cancers, that may be too late – by the time symptoms have emerged, the cancer may have become untreatable.

Even the few proactive cancer screening programmes that currently exist have their limitations. Mammography, for example, has been proven to help spot breast cancer early, but it “doesn't necessarily spot all types of breast cancer equally well”, says Simon Vincent, chief scientific officer at Breast Cancer Now. That's especially true of lobular breast cancer, which accounts for around 15% of all breast cancers. Not everybody takes up the offer of going for mammograms – all the four parts of the UK are not currently meeting their targets – and the offer is limited to specific age ranges. Overworked GPs may be reluctant to order tests for those outside these groups.

Amanda Rice, founder and CEO of Chick Mission, who has survived cancer three times, has experienced such failings first hand. She went to the GP in her 30s concerned about her symptoms, but was dismissed by her doctor, who thought that at her age it was unlikely to be anything serious. She had to do a lot of pushing to get the tests she needed before she was formally diagnosed with breast cancer. Had she not been so persistent, she would probably have accepted her doctor's reassurance or skipped the additional tests because they were “so painful, invasive and costly”.

The limitations of traditional cancer diagnostic methods have led to a search for blood tests that can diagnose cancer. These “liquid biopsies” test for “circulating tumour DNA” (ctDNA), which are small fragments of DNA released into the bloodstream by cancer cells. The aim is to come up with tests sensitive enough to pick up even tiny amounts of such DNA and hence catch the disease at an early stage, says Major. Some tests screen for mutations associated with individual cancers, but the ultimate goal is to produce a “multi-cancer early detection test” (MCED) that can identify a range of cancers and which you can take every few years.

A big challenge is that any test needs not only to be sensitive enough to detect the presence of disease at an early stage, but also have the specificity to avoid large numbers of false-positives, which would clog up healthcare systems and cause patients unnecessary stress. It must also be affordable. Meeting all three criteria is tough. Diagnostic firm Grail's Galleri MCED recently failed in a large trial, which found that its test “wasn't quite effective enough and produced too many false-positives for the NHS to use”, says Major.

Despite these setbacks, there is optimism that liquid biopsies will become “incredibly valuable”, especially for cancers where there is no specific screening programme, or for ones that currently go undetected until they've started to spread around the body, says Vincent. The market for liquid biopsies was already worth between $5 billion and $10 billion in 2025 and is estimated to reach $10 billion-$20 billion by the end of the decade, reckons Erin Xie, managing director and portfolio manager for health sciences at BlackRock.

Blood tests that screen for a wider range of potential signs of cancer are likely to be more successful in diagnosing cancer than those which use ctDNA alone, says Major. One company working on this is DXcover, which was spun out of the University of Strathclyde, Glasgow. Its MCED screens for proteins, lipids and carbohydrates as well as DNA to detect whether cancer is present, its CEO Matthew Baker explains. Trials have suggested that such tests can detect malignant brain cancer with a sensitivity of 86%, even though only a small number of brain cancers shed ctDNA. They might also detect a broader range of cancers at the very earliest stages.

Some cancer diagnostic tests might not even need a blood sample. A test developed by Serox, for example, uses surface-enhanced raman spectroscopy to identify cancer in urine in under three minutes. That makes it much easier to screen, as getting samples will not require trained phlebotomists, as Serox's founder and CEO Cici Muldoon explains. Serox is working on a lateral-flow style stick that works in a similar way to a pregnancy test. Serox is still in the early stages of raising money and is working with John Radcliffe Hospital in the UK and Massachusetts General Hospital in the US.

From diagnosis to treatment

Detecting disease is “only part of the equation”, says Michielssens. Cancer diagnostic tests also have a role to play in directing treatment (companion diagnostics) and in detecting minimal residual disease (MRD) – the small number of cancer cells that may remain in the body following otherwise successful treatment. They can also help determine whether a treatment is working. For example, ctDNA is released when tumour cells die, so a sudden increase in levels of ctDNA immediately after treatment can indicate that the treatment is working.

Similarly, other more complex genetic tests, including those provided by companies such as PacBio, “can give an indication as to whether a patient's cancer is becoming resistant to a particular treatment”, says vice-president Neil Ward.

Another company operating in the area where cancer diagnostics and personalised medicine overlap is CanCertain, which has developed a test that enables clinicians to “pre-screen cancer treatments on the patient's own cells”, says its business development director Dharmesh Mehta. Circulating tumour cells are extracted from patients' blood and then exposed to potential treatments so that the oncologist knows in advance what is likely to work and what is likely to fail. CanCertain is working with The Christie NHS Foundation Trust in Manchester and the University of Leeds to test the technology.

Even if initial therapies treat the cancer successfully, patients typically have to undergo adjuvant treatments, such as chemotherapy and radiotherapy, to eliminate any lingering cancer cells. Patients are then monitored to see if there is any evidence that the cancer has come back, says Gareth Powell, head of healthcare at Polar Capital. Liquid biopsies may in many cases reduce the need for adjuvant therapy and enable quicker follow-up treatment if the cancer returns, says Powell. The fact that there are nearly 20 million cancer survivors in the US alone suggests that there is a great demand for accurate MRD tests, says Michielssens.

A revolution in scanning technology

Alongside the development of more efficient blood tests, imaging and radiology is also starting to undergo its own revolution. While the average MRI machine “isn't fundamentally different from the first machines produced by Peter Mansfield and his team nearly 50 years ago, they are lighter, can fit in smaller locations and don't need as much power”, says Lizzie Tuckey, managing director at imaging platform Scan.com. Advances in AI are also transforming the software that is used in the machines.

AI has made the process of taking a large number of images of the body and then combining them much more efficient, allowing radiologists to get away with fewer images without reducing the quality of the final image. This in turns means that each patient now needs to spend less time inside the scanner, which means that more patients can be scanned, bringing down costs. In the case of CT scans, the fact that the patient is in the scanner for less time means that their exposure to radiation is reduced. AI is also very good at spotting small changes over time.

One firm using AI to cut both the cost and duration of MRI scans is Ezra, part of Function Health. Ezra already offers comprehensive scans for most organs and tissues, which take only 22 minutes, “typically the time most other providers would take to scan a single major organ”, says founder and CEO Emi Gal. The firm hopes that by next year it will have reduced this time to 15 minutes and has set a medium-term target of five minutes for repeat visits.

Such a premium product comes at a price – Ezra's multi-organ scan currently costs £1,299 in the UK. But prices are falling and Gal indicates that he hopes to cut the US price to around $500 soon. Once this happens, having an annual MRI scan to track all sorts of changes in the body “could become something that everyone does, in the same way that we give smokers low-dose CT to screen for lung cancer, or give women who are over a specific age regular mammograms”.

Going forward, the technology is only likely to continue to make scans quicker and cheaper as we already see in the “explosion” in the number of patents filed (traditionally a good leading indicator of future development) and the number of devices approved. At the time of writing, the Food and Drug administration, the US regulator, has approved 1,451 AI-enabled medical devices, “of which around 80% are in the field of radiology”, say Robert Wiseman, Rob Sackin and Alexander Frank of Reddie & Grose patent and trade mark attorneys.

Improving the patient's journey

As well as improving medical imaging, Wiseman, Sacklin and Frank think that AI could help speed up blockages in “the patient's journey”, by making sure that patients get referred to the right specialists, that the proper tests are carried out, and that these tests are then analysed appropriately. The legal uncertainty surrounding software patents makes this sort of development less publicly visible, but they reckon that beneath the surface there is plenty of work going on in this area.

One company at the forefront of using AI to bring together the vast amount of medical information available to doctors is xCures, a service platform that “basically aggregates, organises and structures medical records”, says CEO Mika Newton. Instead of doctors “having to read thousands of pages of medical records and then manually input the information into their own system, the information can automatically be extracted, enabling them to see all the important information quickly”. The technology can, for example, convert unstructured records, such as scans and medical notes, into a more structured form.

In the longer run, speeding up the flow of information through the medical system could be helpful in cancer diagnostics, enabling researchers to find new connections between various symptoms and cancers that human researchers might be unable to spot on their own.

Only 5% of cancer patients are currently involved in some sort of clinical trial, so opening up medical records in this way (with appropriate consent) could speed up developments in both the diagnosis and treatment of cancer.

AI can also help hospitals and healthcare systems decide how to choose between the various cancer tests that are suddenly appearing on the market – many of which are built by small companies with very specific applications, say Flann Horgan and Mitchell Goldberg of NTT Data. NTT Data has recently developed a platform, in conjunction with the Royal Marsden Hospital and the Institute of Cancer Research, that helps researchers “evaluate lots of different algorithms without having to fly all over the world, and then integrate them into their workflow”.

The best cancer diagnostic investments to buy now

Until recently, one of the leading players in the liquid biopsy market was Exact Sciences. It had several of its tests approved and had developed Cancerguard, a separate blood-based multi-cancer early detection (MCED) test. This year, the firm was acquired by Abbott Laboratories (NYSE: ABT). While liquid biopsy is only part of Abbott, which also sells medicines and cardiovascular devices, the deal gives Abbott a strong foothold in the area. Indeed, Grégoire Biollaz of Pictet Asset Management points out that Exact Sciences with its high-teens revenue growth adds a faster-growing segment to Abbot's Diagnostics division. Abbott trades at 17 times expected 2027 earnings and pays a yield of 2.5%.

A purer play on liquid biopsies is Guardant Health (Nasdaq: GH). It has already had a blood test for colorectal cancer approved – a more convenient alternative to the current stool-based test. The colorectal test is, however, really “just a proof of concept” for Guardant's more ambitious medium-term plans for further MCED tests, says healthcare investor Paul Major. Guardant is also developing tests that will help guide treatment as well as one to detect residual levels of cancer. It isn't yet making any profit, but its revenues more than tripled between 2020 and 2025.

Major is also a big fan of Adaptive Biotechnologies (Nasdaq: ADPT). It has already developed clonoseq, a test approved by the US regulator to detect the presence of residual tumour cells in lymphoid cancers. It can be used to inform decisions around treatment, sparing many patients unnecessary chemotherapy, and is also used by many drug companies in clinical trials to evaluate the effectiveness of drugs. Like many biotechnology companies, it is currently losing money, but sales are rocketing. Major believes that it is a prime takeover target for a large company looking to acquire its core technology.

The leading imaging company in the US is RadNet (Nasdaq: RDNT). As Polar Capital's Gareth Powell explains, RadNet has found a way to undercut hospitals, which means that many US insurance companies will try to get patients to use the company's services. It has been investing large sums in developing AI that can read scans, which has been validated in clinical studies, and the firm is in the process of rolling it out. The stock trades at a pricey 57 times estimated 2027 earnings, but revenues have essentially doubled between 2020 and 2025. It is expected to keep on growing strongly.

Siemens Healthineers (Frankfurt: SHL) is “in a very good position” when it comes to producing MRI and CT scanners, say Dullinger and Biollaz. Siemens also makes a wide range of medical devices and its laboratory division will benefit from any rise in the volume of blood tests being carried out. Sales have grown by two-thirds between 2020 and 2025 and the stock trades at only 15 times 2027 earnings. The yield is 2.9%.

Finally, Dan Buckley of Daytrading.com likes Illumina (Nasdaq: ILMN). It provides a lot of the infrastructure necessary in the use of genomics in diagnosing cancer and the use of diagnostics in informing treatment. The stock trades at 23 times 2027 earnings.

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Against an uncertain global backdrop, British stocks have touched new highs in 2026, once again showing the UK's resilient nature when compared with other developed markets. As contrarian-minded value investors, we are firm believers in the maxim that “price is what you pay, value is what you get”, and the UK's outperformance has as much to do with the modest starting valuation of many of its companies as with its preponderance of resilient, cash-generative businesses. It's one of the reasons the UK remains a fertile hunting ground for those seeking out under-appreciated stocks that have fallen out of favour with investors but have the scope to deliver strong risk-adjusted returns for those willing to take a longer-term view. The following three companies are examples of businesses we think the market may be overlooking.

Speciality chemicals company Croda (LSE: CRDA) is a British stock with contrarian attractions. The shares are coming out of a period of deep underperformance after a confluence of issues served to undermine the business's former world-class reputation and history of high margins, good growth and attractive returns. End markets have proved tough and high levels of investment in exciting new pharmaceutical-oriented capabilities have yet to pay off. Nevertheless, over time we have become convinced that this business is far from broken and there is scope for substantial improvements in profitability on the back of an ambitious cost-reduction programme, well-invested assets and recovering demand. Shareholders can expect a market-beating yield of more than 4% while they wait.

Communications group WPP (LSE: WPP) is another British stock we think has reached a price that deeply underestimates the intrinsic value of the business. Under new leadership, the business is consolidating so as to leverage the enviable talent and technological prowess at its disposal. After a period of extended underperformance against a tough market backdrop, for the last two consecutive quarters, the company has led the market in winning new business. This supports our view that WPP has turned a corner and reinvigorated its competitiveness in the advertising and marketing business, where scale and data are all-important. There is clear evidence that the business is making real progress in transforming the group's structure, and ample cash on the balance sheet gives the firm options. The shares are trading on an exceptionally undemanding price/earnings ratio of less than five times and offer a yield of well over 6% for the next year, so investors will be well compensated for the risk.

Chesnara (LSE: CSN) is a lean, tightly run insurer led by a seasoned team that specialises in buying closed life-insurance books, often at big discounts to book value. These acquisitions generate reliable, long-term cash flows, boosted by disciplined cost control and a proven ability to make the most of business synergies. The result is a dividend that rises every year, giving Chesnara the strongest record of continuous growth in UK and European insurance. A transformational deal for HSBC's UK Life business last year lifted the group into the FTSE 250 and delivered a one-off 6% dividend hike. With more deals in sight, a conservative balance sheet and an 8%+ yield, Chesnara stands out as an attractive income play that many won't have considered.

When a business falls out of favour, it sometimes doesn't take much for sentiment to start improving. These British stocks are not without risk, but they could offer rich rewards for patient investors over time.

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Legal & General Group (LSE: LGEN) is one of the oldest companies in the UK. It's also one of the few remaining that formed part of the FTSE 100 at the time of its inception. The group is known among investors as a slow-and-steady beast that pays a consistent, relatively high dividend yield, but hardly does anything to get the pulse racing. That is starting to change as Legal & General transitions towards an asset-light, higher-margin, faster-growth business.

Legal & General's longevity is down to its business model: life insurance and long-term savings. It is one of the largest retirement, life-insurance, and annuity providers in the country, operating under strict rules to ensure management runs the business prudently with a long-term mindset.

This means the business is relatively boring compared with other blue chips – boring, but not unprofitable. Legal & General throws off cash and has established itself as one of the UK's top income stocks, with a yield consistently in the high single digits.

Usually, such a high dividend would be a warning sign. Yields significantly higher than the market average usually indicate that investors believe the payout is unsustainable. In this case, however, the high yield and low valuation are more a reflection of the market misunderstanding the business model.

Legal & General is a dominant leader in the bulk-purchase annuity market and the largest provider of term life insurance in the UK. Both of these products are financially complex, involving multi-decade liabilities and, as a result, are heavily regulated.

There are strict rules governing how much capital the company must hold to meet its liabilities. Even for the most sophisticated financial analysts, determining how much revenue a bulk-annuity purchase or a term life-insurance product will generate over ten or 20 years is not straightforward.

You only need look at the firm's peers to understand this isn't a problem affecting only Legal & General. Chesnara, Standard Life (formerly Phoenix) and Just Group are all cheap and offer high yields. The problem is so bad that private-equity group Brookfield recently offered a 75% premium to buy Just. Standard Life has also decided to rename the company to focus on its more visible pension products, moving away from the old Phoenix brand, which was known as a closed-book consolidator.

This isn't just a problem in the UK. In the US, Brighthouse Financial (originally spun off from MetLife in 2017 to focus on retail life insurance) was acquired last year for a 55% premium. Athene was acquired by private-equity giant Apollo in 2022 for a 20% premium. Athene-backed Athora is in the process of acquiring the UK's Pension Insurance Corporation for £5.7 billion.

Jackson Financial, formerly the US arm of London-listed Prudential, spun off in 2021, has been so neglected that management has been able to acquire 40% of the outstanding shares in the past five years from cash flow as well as distributing a handsome dividend.

Times are changing, and so is Legal & General

Legal & General is becoming increasingly less reliant on its bulk-annuity, pension-buyout and life-insurance businesses. Instead, its asset-management and retail arms are driving an increasing share of profit. With £1.2 trillion of assets under management, Legal & General is one of the UK's largest investment-management firms.

It manages the funds attached to the defined-contribution (DC) pension schemes it manages, funds for international clients and a growing portfolio of private assets. Its private-market assets grew from £57 billion to £75 billion last year, which helped the overall fee margin on assets under management rise from 8.8 basis points to 9.1.

The group's workplace defined-contribution pension platform will be a key driver of growth going forward. According to the Pensions Policy Institute, the aggregate value of private-sector workplace assets could grow from around £1.2 trillion in 2025 to around £2.2 trillion in 2045, or £4.4 trillion in a best-case scenario. There will also be significant consolidation among the major players. By 2035, the market is projected to comprise only 15 to 20 large DC “mega-funds”, down from more than 60 providers today.

Legal & General's workplace DC assets under administration rose 21% to £114 billion in 2025. Net flows totalled just £6.2 billion. But management believes workplace saving is now the group's “core customer acquisition engine” and the group expects £40 billion to £50 billion in net flows by 2028. The group's retail arm includes annuities, lifetime mortgage and retail insurance products.

Other revenue streams also suggest the business is firing on all cylinders. In the institutional retirement arm, the group has flagged a contractual service margin (CSM) of £12.4 billion, up 2% year on year. This is the unearned income the group is forecasting it will generate from its book of annuities – equivalent to roughly 214p per share, net of tax.

Management announced a £1.2 billion share buyback alongside the company's 2025 results – the largest in the group's history – on top of a 2% dividend hike. Total cash returns this year will come in at £2.4 billion, with management saying it expects £5 billion of shareholder returns from 2025 to 2027, 35% of the company's market value.

Based on these projections, shares are trading at a total shareholder yield of 16.7% for 2026 and a historical price-to-earnings (p/e) ratio of 11.9, although this does not account for long-term profit-generation potential, as highlighted by the group's forecast CSM. Legal & General is continuing its transition to a cash-generative, asset-light business. Investors should take note.

Rupert Hargreaves owns shares in Legal & General

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The Ashoka India Equity Investment Trust follows a bottom-up approach focused on identifying quality Indian stocks with strong returns on capital and attractive valuations. Stock selection is the key driver of performance, supported by rigorous proprietary research, disciplined valuation frameworks and screening of corporate governance.

The portfolio is built with long-term conviction, diversified across sectors but with a bias towards growth opportunities, particularly in small and mid-cap companies – reflecting the belief that India's market inefficiencies create significant opportunities for boosting returns. In this context, we discuss the top three holdings in the Trust: Bharti Airtel, ICICI Bank and Bajaj Finserv.

Three Indian stocks to consider for long-term growth

Bharti Airtel (Mumbai: BHARTIARTL), part of Bharti Enterprises, is India's leading telecoms company, with a presence across wireless, fixed-broadband, enterprise and satellite-television services. The company also operates wireless and mobile-money operations in several African markets and is well positioned to benefit from the improving industry structure and pricing outlook in the India wireless market.

Execution remains strong across all business lines, underpinned by a disciplined approach to capital allocation and a focus on sustainable returns. Bharti continues to perform well across key operating metrics, which is reflective of the superior quality of its subscriber base.

ICICI Bank (Mumbai: ICICIBANK) is one of the leading private-sector banks in India. Given the under-penetration of credit in the country, the Indian banking sector offers highly appealing long-term growth prospects. Well run private-sector banks such as ICICI Bank are gaining market share from state-owned banks, which still account for around 60% of the overall industry.

The management team has been leveraging ICICI's wide distribution franchise, a new risk-based pricing approach and digital offerings in order to accelerate market share and enhance return ratios. The bank's asset quality, moreover, has also remained robust.

Bajaj Finserv (Mumbai: BAJAJFINSV) is a leading diversified financial-services firm with three key business units: Bajaj Finance; Bajaj General Insurance; and Bajaj Life Insurance. Bajaj Finance is India's leading consumer-lending franchise.

Using its industry-leading technology platform, the company has built a diversified presence across consumer, commercial, rural and mortgage segments, supported by a strong record of prudent risk management.

Bajaj Finance is expected to grow approximately 1.5 times as fast as the overall banking system's credit growth and deliver a return on equity (ROE) of between 20% and 22% over the next few years.

Bajaj General Insurance, the group's multiline general insurance business, is the second-largest and among the most profitable private general-insurance companies in the Indian economy.

Bajaj Life Insurance, the group's life-insurance company, continues to see strong growth and improving profitability. We feel it has the potential to grow to several times its current size over the next few decades.

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The Fidelity Special Values investment trust employs a contrarian value-investment approach, focusing on unloved companies with the potential for positive change. We evaluate the downside protection of a company before considering its prospects over a period of between three and five years.

We seek opportunities across the breadth of UK stocks, although there is a structural bias towards mid- and small-cap companies, as this is an under-researched area where we find attractively valued stocks with good turnaround potential.

It can take time for a turnaround to materialise and investors to buy into the story. A diversified portfolio means we do not rely on the recovery of a specific holding. By building a portfolio of stocks in different stages of the recovery process, we hope to deliver outperformance across different market environments.

Three overlooked UK stocks

DCC (LSE: DCC), a UK stock which offers other companies energy, healthcare and technology services, is restructuring. It plans to focus mainly on energy, an area where it boasts a strong record of generating attractive returns on capital and growing through acquisitions. The firm fulfils our downside criteria, given that the shares are on a historically low valuation, while management is delivering substantial share buybacks, which are highly accretive to earnings power.

Market sentiment has been weak, largely owing to concerns around the structural decline of the group's fossil-fuel distribution business. However, we believe these fears are overdone and the substitution effect is likely to be slower than expected.

The highly consolidated nature of the industry enables established players to maintain strong margins and deliver attractive returns. Meanwhile, DCC continues to expand its renewable-energy activities, including solar installation and other energy-efficiency solutions. DCC's defensive characteristics – akin to those of utilities – and attractive valuation make it stand out as a compelling turnaround opportunity.

Best known for Sports Direct, Frasers Group (LSE: FRAS) also owns a broad portfolio of retail brands, such as Flannels, House of Fraser, Evans Cycle and USC. Its strength lies in its unique business model. Frasers Group leverages its scale and relationships with brands to acquire discounted stock in bulk from major labels (such as Nike and Adidas), supporting margins and profitability.

Unlike most retailers, it owns its retail sites rather than leasing them, providing it with a significant amount of backing from property assets. It also owns sizeable stakes in Hugo Boss, AO World, Asos and Mulberry, underpinning approximately 40% of its equity value and jointly implying that the core business trades on a very attractive low single-digit price/ earnings (p/e) ratio.

Standard Chartered (LSE: STAN) is an emerging market-focused bank that operates across Asia, Africa and the Middle East, providing retail, corporate and institutional services in some of the world's fastest-growing markets. Over the past decade, management has reduced the risk inherent in the business, streamlined operations and steadily advanced a turnaround strategy that is delivering tangible results.

The bank offers an opportunity to tap into strong emerging-market growth, which is a play on Asia's growing wealth. It is probably the fastest-growing regional wealth manager; this division generates about a third of the group's overall profits. Wealth managers are generally viewed as high-quality businesses, and tend to trade around 15 times earnings, whereas Standard Chartered trades like a bank on ten times earnings. Where the market's perception diverges from reality is where we see the opportunity.

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Seraphim Space Investment Trust (LSE: SSIT) was the best-performing investment trust in 2025 and is up by a further 10% this year. This is a fantastic turnaround for a company that was struggling to attract much attention until around six months ago.

Seraphim is one of the few investment vehicles to provide private investors with access to early-stage space companies. The space market is worth around $600 billion annually, much of it controlled by governments. Global defence contractors such as Lockheed Martin have a significant foothold, but the universe of pure-play public and private businesses is small.

If you exclude SpaceX – which is aiming for a $1.5 trillion initial public offering (IPO) – the total value of pure-play public and private companies is about $160 billion. That's not a huge figure for a market that's expected to triple in value to $1.8 trillion by 2035, according to a report from consultants McKinsey – the bull case suggests it could be worth $2.3 trillion.

Enter Seraphim, which is run by a venture capital firm of the same name that focuses solely on space technology. The £342 million trust is tiny by global standards, but it's unique – a fact that has suddenly dawned on investors. The investment trust structure is well-suited to this kind of investment: it provides a permanent pool of capital, so the manager doesn't have to worry about withdrawals and can focus on finding the best investments, while investors have liquidity and don't have to lock up large sums for extended periods.

Investors should take a second look at Seraphim

The trust launched in 2021 with an oversubscribed IPO, but by mid-2023, it was trading on a discount to net asset value (NAV) of over 70%. However, this has gradually reduced, before flipping to a premium for most of this year. That may partly be due to the hype around the SpaceX IPO (a stock that it does not hold), but also reflects the success of the trust's own portfolio companies.

Last year, its portfolio returned 20%, led by a 25% rise in satellite firm ICEYE, its largest holding. ICEYE, the leading manufacturer and operator of synthetic aperture radar (SAR) satellites, has been contracted to supply Germany's armed forces with space-based reconnaissance data.

Seraphim owns just over 5% of ICEYE, which is now valued at $3 billion and is targeting revenue of more than €1 billion this year, up from €250 million last year. If the valuation grows at anywhere near the same rate, Seraphim's holding could be worth more than £500 million within 12 months. As a bull-case comparator, SpaceX is targeting an IPO at 100 times sales. If ICEYE can achieve a valuation anywhere near this level, Seraphim's holding could be worth billions, catapulting the trust into the FTSE 100.

ICEYE gained most attention last year, but Seraphim's largest gain in percentage terms came from communications platform All.Space, which nearly doubled its value. All.Space has announced a partnership with Aalyria, a space communications spin-out from Google, and secured funding from the European Space Agency's Navigation Innovation and Support Programme to develop navigation that works when GPS is jammed. Geolocation firm Hawkeye 360 also performed well, with its value jumping 65% after it launched its fifth satellite cluster and completed a $150 million funding round.

For most of its life, Seraphim has rightly been viewed as a high-risk vehicle with limited visibility into future growth. However, developments across the portfolio last year suggest its key holdings have reached a level of maturity that's removed much of the initial risk associated with early-stage start-ups. Investors who have overlooked the trust in the past might want to give it a second look. The portfolio is only just getting ready to take off.

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The war in the Middle East has created a global oil and gas supply shock, similar in scale to the crisis unleashed in 2022 when Russia invaded Ukraine and cut off Europe's gas supply.

In some regards, this conflict threatens to have an even bigger impact on global hydrocarbon markets if it persists. As countries turned away from Russian gas supply in the months and years after the beginning of the Ukraine conflict, buyers turned to Middle Eastern suppliers of liquefied natural gas (LNG) to replace Russian imports.

At the beginning of the year, LNG shipments from Qatar and the United Arab Emirates (UAE) accounted for about 20% of global LNG supply, but these supplies have now been cut out of the market due to the de facto closure of the Strait of Hormuz.

As supply has been cut off, buyers have rushed to secure new cargoes, paying huge premiums. Building facilities to convert natural gas into the super-cooled liquid product isn't for the faint of heart. These plants can cost around $10 billion for a mid-sized facility, although most producers build as large as possible to achieve the best economies of scale.

As a result, price tags of $50 billion-plus are common. The scale of these projects means that most output is sold on long-term agreements before production even begins, so backers know they have a return on investment before committing billions.

About 70% of LNG output globally is sold on long-term contracts, making it hard for buyers who have now been forced to look elsewhere to secure the energy they need. Prices have spiralled as a result. The price of natural gas in Europe increased 70% in a week after the conflict began.

Venture Global is the fastest gun in the west

Enter Venture Global (NYSE: VG). Founded by former banker Mike Sabel and lawyer Bob Pender just over a decade ago, the company has grown from nothing into one of the largest LNG producers in the US, which itself has surpassed Australia and Qatar as the biggest exporter of the fuel.

Venture Global's founders (who still own around half of the company) looked at the cost of building traditional LNG facilities and set out to take a different approach. They modified the design to focus on smaller modular units, which allows factories to fabricate pieces off-site.

The industry was sceptical, but Venture soon proved its doubters wrong. Its inaugural project, Calcasieu Pass, went from a final investment decision in 2019 to exporting fuel in just 29 months, making it one of the fastest LNG plants ever constructed (although, like most LNG projects, it busted its budget to the tune of $1 billion).

Venture plans to become the second-largest LNG producer in the US, behind only peer Cheniere Energy, which produces around 60 million tonnes per annum (Venture has plans to produce a little over half of that). A total of 90% of this is sold on long-term contracts. The total global supply forecast is expected to rise between 460 and 484 million tonnes in 2026 due to new capacity from the US and Qatar.

Unlike Cheniere, Venture has only fixed 70% of its sales. That leaves 30% to sell at the spot market, which could produce a windfall for the business. Indeed, management has said that a $1.00/MMBtu change in fixed liquefaction fees – the spread between the cost of purchasing natural gas in the US and selling LNG abroad – will impact full-year 2026 adjusted Ebitda by $575 million-$625 million.

The company has said it expects full-year Ebitda of $5.2 billion-$5.8 billion, assuming a fixed liquefaction fee range of $5.00- $6.00/ MMBtu. Following the recent turbulence in the market, the spread between US Henry Hub (the US natural-gas benchmark) and European TTF/Asian JKM benchmarks has jumped to as much as $15/MMBtu.

Venture's decision to leave 30% of production available for sale on the spot market could prove profitable this year, but the market has not factored this windfall into the company's valuation. Based on estimates compiled by analysts at investment bank UBS, the stock is trading at a forward, 2026 price-to-earnings (p/e) multiple of just 9.6.

These figures were compiled alongside the company's results for the fourth quarter of 2025, released at the end of February, before the recent conflict began. Based on the company's fourth-quarter outlook and long-term output growth projections, UBS had pencilled in revenue rising from $11 billion in 2026 to nearly $19 billion by 2029, with net income roughly doubling over the same period. All of these numbers are out of date, but they provide a good indication of Venture's estimated growth in a “normal” market.

One of the reasons Venture is so cheap, and has always been since its IPO in early 2025, is related to lawsuits hanging over the firm. In 2022, after the Ukraine war sent gas prices skyrocketing globally, Venture rerouted some of the cargoes destined for its customers with long-term supply agreements, such as Shell, BP and Repsol, to other customers willing to pay higher prices on the spot market. Those traders left out of pocket sued, claiming as much as $6 billion. Over the past few months, after several years of arbitration, the clouds have started to clear. While Venture lost a case with BP, it has won cases against Shell and Repsol, removing a lot of uncertainty.

Don't fear the debt

Another factor that appears to be acting as an overhang on the stock is the company's debt. At the end of 2025, it had a net debt-to-Ebitda ratio of five, leaving little room for manoeuvre. However, with a cash injection expected this year, thanks to the impact of higher natural gas spreads, the company has the opportunity to make a material dent in these liabilities. The stock looks like a promising play on the brewing energy crisis.

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Utility companies, who provide basic services such as power, water and gas, are traditionally seen as defensive investments. This is because these goods are considered necessities, which means that demand will remain relatively stable even during periods of economic stress.

On the other hand, during periods of strong economic expansion, these sectors will grow at a much slower rate than the rest of the economy. As a result, their shares tend to be of interest to investors looking for a nice dividend rather than for capital growth. However, there are exceptions, and one of these is the energy company SSE.

The core of SSE’s energy business involves delivering electricity across southern England and Scotland. While this is considered a low-risk, humdrum activity, SSE is doing several things to boost growth, including launching an ambitious £33 billion investment programme.

Part of the money will be spent on increasing its capacity for generating renewable energy. The group believes that the planned transition to a low-carbon economy will continue, resulting in consumers being willing to pay a premium for renewable energy.

SSE is upgrading the network

However, the vast majority (around two-thirds) of SSE’s investment is directed at upgrading its electricity-transmission network. The idea is that this will enable it to make money by connecting the producers of renewable energy to the national grid, where the electricity can be transported to those who need it. Provided SSE can deliver the various infrastructure projects on time and on budget, this should enable it to receive a high return on this investment.

Of course, there is no guarantee that these plans will work, which makes SSE riskier than other UK energy companies. The firm’s strategy depends on energy prices not falling and demand for green energy remaining strong. However, the potential upside is greater too, especially if the demand for electricity from data centres and from other sectors of the green transition (such as electric cars) accelerates the pace at which electricity is required in the overall economy.

So far the strategy seems to be paying off. SSE’s revenue jumped by almost 50% between 2021 and 2025, with normalised earnings per share more than doubling between 2020 and 2025. SSE’s management expects this trend to endure, projecting that earnings per share will increase by 7%-9% a year over the next five years, allowing it to increase its dividend by up to 10% a year over the same period.

Despite these bullish estimates, the stock trades at only 14 times estimated 2027 earnings, with a solid dividend yield of 2.8%.

SSE’s ambitious plans seem to have caught the imagination of investors. The share price has risen 26% over the last six months and 44% over the last year. SSE shares also trade above their 50-day and 200-day moving averages.

I would therefore suggest you go long at the current price of 2,596p at £1 per 1p. In that case, I would put the stop-loss at 1,600p, giving you a total downside of £996.

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The household- and personal-goods sector sits at the heart of everyday consumer spending.

It covers the staples people buy week in, week out – from laundry detergents and cleaning products to toothpaste, shampoo and skincare products.

These are typically low-cost, repeat-purchase items, sold under familiar consumer brands that dominate supermarket shelves and bathroom cabinets alike.

That combination of strong brands and steady demand has long given the sector a reputation for reliability.

For decades, this made household-and personal-goods companies a cornerstone of “quality” investment portfolios.

Their brands commanded premium pricing, supported by scale, heavy advertising and incremental innovation.

Returns were predictable, cash flows dependable and growth steady. Investors came to view the sector as a safe haven – dull, perhaps, but reassuringly resilient.

Today, the sector is grappling with three distinct challenges.

First, the rise of alternative private-label products, such as Amazon Basics, is steadily eroding the pricing power of established consumer brands as customers trade down.

Second, growth in key beauty categories, including skincare, is slowing.

Finally, companies are contending with a rising regulatory burden, not least tougher requirements to reduce the environmental impact of their products and supply chains.

Not all firms will be able to deal with these challenges and some are better placed to do so than others.

Consumer brands hit by the rise of private labels

The first challenge is a steady decline in consumers’ loyalty, caused by the narrowing gap in product performance.

In the past, companies such as Procter & Gamble (maker of Oral-B and Head & Shoulders) and Reckitt (Strepsils and Durex) benefited from a strong brand advantage.

Shoppers believed that cheaper alternatives, sometimes called private-label goods, simply did not work as well.

Recent data shows that this belief has largely disappeared, especially in categories where performance can easily be compared, such as cleaning products.

In the UK grocery market, private-label products now account for more than 40% of sales by value, while unit shares exceed 47% in basic categories such as bleach and toilet paper.

The shift is even faster in the US, where consumers are even more accustomed to buying non-branded versions.

This move towards cheaper products is no longer just a short-term reaction to higher prices. It reflects a lasting change in behaviour.

Surveys show that households have tried cheaper brands and found little or no difference in quality compared with leading consumer brands.

As a result, store-brand volumes in cleaning and laundry products have consistently grown faster than branded alternatives in recent years.

The rise of discount retailers such as Aldi and Lidl has reinforced this trend.

These shops strip out the branded tax, which is the portion of a product price used for advertising and can make up as much as 30% of the sales price.

Aldi now has 13,500 stores worldwide and is still expanding rapidly, with a plan to open 600 in the US alone in the next two years.

With greater coverage from the discount chains, pressure is mounting on national consumer brands to defend their higher prices.

Online retail has accelerated this shift further. Amazon Basics has become a serious competitor by using search data to spot categories where customers feel branded products are overpriced.

Once consumers discover that a low-cost dishwasher pod works well enough, for example, they are unlikely to choose a brand at all. For price-conscious shoppers, paying about 50% more for a small improvement in a basic product no longer makes sense.

As innovation becomes easier to copy, new product formats are quickly replicated by private-label producers, weakening the traditional advantage of brand-led research and development.

The shift to “recession glam”

The second challenge is a clear slowdown in the trend that powered the prestige beauty industry for more than ten years.

This is largely driven by weaker demand in China. Until recently, China had been the main engine of growth for ultra-premium brands such as La Mer, the hugely expensive skincare label owned by Estée Lauder.

In 2024, the Chinese beauty market shrank by 2.2%, marking a shift towards what some now call “recession glam”.

Consumers seem to be placing greater emphasis on value and practical results rather than luxury and a brand’s image. Growth is no longer driven by higher prices, but by volumes and products that deliver visible benefits.

The sharp decline in travel-related retail has exposed another weakness.

In China, duty-free sales on the popular tropical holiday island of Hainan fell by around a third in 2024 after government action clamped down on the reseller market.

Notably, this came despite higher numbers of visitors. The total number of items purchased fell by more than 35%, suggesting shoppers are prioritising experiences over luxury goods.

At the same time, domestic Chinese beauty brands, known as C-Beauty, are gaining ground by offering effective products at a fraction of the price. Chinese firms such as Proya have grown almost fourfold in six years by appealing to value-conscious consumers who care more about ingredients and performance than brand prestige.

Younger consumers are also questioning the value of paying extra for luxury beauty products. Only 14% of US shoppers now believe that higher prices mean better quality.

Social media has encouraged a strong “dupe” culture, where influencers compare $100 luxury serums with $15 alternatives from the high street.

This has supported the rise of so-called “dermaceutical” brands, which focus on clinical testing rather than luxury packaging.

While the wider prestige market struggles, global dermo-cosmetics sales are expected to exceed $75 billion by 2030. In today’s beauty market, status is less about owning a luxury product and more about proof that it actually works.

The eco-efficiency paradox

The third challenge is a growing clash between what environmental policy demands and what corporate economics can realistically support.

What began as voluntary sustainability pledges is rapidly becoming hard regulation. As a result, the basic cost of doing business is rising.

In the UK, plastic-packaging taxes continue to rise at rates above inflation.

Manufacturers will be forced to compete for a limited pool of recycled plastic, driving a bidding war for materials that are already scarce. The inevitable result is structurally higher input costs, with high-quality recycled resin frequently trading at or near record prices.

These pressures extend far beyond packaging. Meeting new sustainability standards often requires a complete redesign of the production process itself.

Retooling a single production line can cost tens of millions of dollars, locking global players into multiyear capital-expenditure programmes.

Procter & Gamble, for example, expects restructuring costs of up to $1.6 billion through 2027 as it attempts to adapt.

Many of the greener alternatives are simply more expensive to make, which is lowering profit margins.

At the same time, companies are losing their ability to offset these higher costs by charging a premium. Aggressive anti-greenwashing laws in the UK and EU now ban vague claims such as “eco-friendly” or “sustainable” unless they are backed by detailed, third-party verification.

These problems are being compounded by retailers. Supermarkets are launching their own “sustainable” private-label ranges, often priced well below branded alternatives.

The price gap that once protected premium consumer brands is narrowing fast, further undermining margins and loyalty to the brand.

Taken together, these forces suggest that the old investment case for household-goods giants is breaking down.

As private labels close the quality gap and consumers’ behaviour shifts, investors must now distinguish between companies that are managing decline and those reinventing themselves.

The winners will be determined by strategy, not scale. To preserve their quality investment status, the industry’s largest players are being pushed to re-engineer their products. That often means moving away from commoditised home-care products and towards more specialised categories, such as hygiene, dermatology and science-led beauty products.

These are areas where efficacy, regulation and intellectual property still provide barriers to entry.

In today’s market, it is not size alone, but agility, scientific credibility and the ability to navigate increasingly complex regulations that are becoming the true drivers of long-term value.

The giants of the consumer brands sector

Procter & Gamble is the largest firm of its type in the world and is navigating a period of slow growth.

In the fiscal year of 2025, net sales remained unchanged at $84.3 billion, with organic sales growth of just 2%; some way below the 4%-5% it reliably generated in the past.

The firm is working to protect its 22% operating margin through a $3.2 billion annual productivity drive designed to offset the rising costs of retooling its operations to meet stricter regulations. The company also faces a $400 million bill from new tariffs.

Nonetheless, it has a diverse set of products spanning multiple segments, making it dependable. This translates to a high free cash-flow yield that supports a good dividend. The investment case for Procter & Gamble remains one of defensive stability rather than high growth.

Unilever is similarly refining its focus through its “Growth Action Plan 2030”, which prioritises 30 so-called power brands spanning food and personal goods.

The largest brand by sales is Dove. The company has long been a leader in social programmes and is particularly focused on reducing the use of plastic.

The firm has admitted it will miss several milestones in its plans to cut plastic and is facing threats from new product launches and private labels, but it is investing heavily in marketing to differentiate its products.

The beauty brands

L’Oréal enters 2026 as the clear outperformer in the sector, with like-for-like sales growth rising. This success is driven by its dermatological beauty unit, which has become the primary growth engine for the group and includes brands such as Maybelline and Garnier. It has sought to mitigate the slowdown in the key Chinese market with brands such as SkinCeuticals.

The company has a dominant position in high-tech fragrances and professional haircare, where profitability is high and well-defended. It has also been actively marketing its sustainability credentials.

Beiersdorf is following a similar path and growing well through its dermatological businesses, Eucerin and Aquaphor, and a new generation of epigenetic serums. The emphasis has shifted from cosmetic anti-ageing products towards “skin longevity”, tapping into science that aims to preserve skin function at a biological level rather than simply masking the signs of ageing.

Its luxury segment initially came under pressure in China, but it has recently returned to growth while concerns over the long-term outlook for the Chinese market remain.

By tilting its portfolio towards faster-growing segments, Beiersdorf has defended its mass-market stronghold while scaling higher-margin, premium lines.

Ultimately, Beiersdorf sits in the shadow of its much larger rival, L’Oréal. It has a less balanced product set and is much more dependent on Europe and China.

The turnaround stories

Reckitt is simplifying its portfolio. Last year, the company sold most of its essential home division to private equity. The divested business included brands such as Air Wick and Cillit Bang. The move allows the group to focus on consumer health and hygiene, where it believes its brand value is stronger.

This strategic retreat from commoditised home-care categories will allow it to focus on “power brands” that maintain higher profit margins, such as Lysol and Durex. A £1 billion pound share buyback programme is intended to support the shares in the meantime.

Estée Lauder is also attempting a recovery after a near 90% decline in the shares between 2022 and 2025. The group’s “Profit Recovery and Growth Plan” is designed to rebuild margins through operational efficiencies. It also marks a strategic shift away from the aspirational middle class and towards luxury brands such as La Mer. It is also promoting brands on Amazon to capture younger, value-conscious shoppers.

The specialists

Colgate-Palmolive continues to dominate the global toothpaste market, with more than a 40% share. It has consistently been one of the best-run businesses in the sector and uses analytics to sharpen its prices to counter the threat of private-label brands.

Organic growth has been 1.2% in recent years and the company is relying on its “Strategic Growth and Productivity Plan” to generate gains in a sluggish North American environment.

Kimberly-Clark is executing a high-stakes pivot to drive growth by focusing on its core baby and feminine-care categories, where the brand value is strongest.

It is selling lower-margin segments to target a gross margin of 40% and an operating margin of up to 20% by the end of the decade. However, near-term profitability remains under pressure and its products are among the most threatened by cheaper alternatives.

Henkel, the German owner of Persil, has achieved increased profitability by merging its consumer brands divisions. The company’s focus on its top-ten brands has stabilised organic sales growth, even as it navigates a challenging global market.

The Henkel family still retain absolute control over the business despite not owning 50% of it. Additionally, the large adhesive division, which includes brands such as Pritt-Stick and Loctite, is threatened by cheaper alternatives.

The British contenders

PZ Cussons has struggled for many years. It relies heavily on the Nigerian economy, which is suffering badly. Management has been proactive in reorganising the portfolio to the more profitable brands, but the shares are very cheap as investors have grown weary of turnaround plans.

Meanwhile, McBride has emerged as a major beneficiary of private-label products. It produces these on behalf of third parties, such as supermarkets. By beating its net debt target and reinstating dividends, McBride enters 2026 from a position of strength having struggled for many years.

The best consumer brand stocks to buy now

For UK investors, Unilever (LSE: ULVR) looks a good bet. It rarely has a misstep and is proactive about ensuring that the portfolio of brands it owns are the most profitable. It also has a large food division so that the exposure is to more than just Dove.

For those willing to look outside the UK, Procter & Gamble (NYSE: PG) is a diversified punt on the theme without having to take any specific views on the disparate parts of the sector. L’Oréal (Paris: OR) has a tremendous history of value-creation and looks to be in a good place, although there is a risk of cheap Chinese alternatives eroding its market share.

Estée Lauder (NYSE: EL), having had a terrible run for a few years, looks to be regaining its mojo. Should this continue, the shares could soon look very cheap. PZ Cussons (LSE: PZC) has frustrated investors for years, with continued poor performance. Yet there are a few decent brands with the potential for recovery. Like Estée Lauder, it could prove to be profitable should the turnaround yield results. Finally, McBride (LSE: MCB) has long been a bit of a dog, but the relentless rise of private-label products together with a much better balance sheet makes the business look very interesting.

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Global equity markets are increasingly fragile, dominated by the US, which in turn is heavily influenced by the AI boom. Many investors are therefore exposed to a single dominant theme. The vast sums being spent on building AI infrastructure support the US economy, driving the stock market and bolstering consumption through the wealth effect.

Global equities have become dominated by the US and by AI, leaving markets highly concentrated and expensive. Should this spending be questioned and ultimately reigned in – expected given uncertain returns on capital – the effect will be material.

Meanwhile, investors have sought to price the effects of AI on individual businesses. Broadly, hardware companies have been bid up as the clear beneficiaries (witness Nvidia), whereas many software firms have suffered owing to perceived risk of disruption.

AI is a transformative technology that will reshape economies, but we believe this effect will take years to develop, suggesting investors have overemphasised near-term effects. If enthusiasm for AI wanes and spending is curtailed, this “hardware good, software bad” dynamic may well reverse. In our view, this creates a great opportunity.

Beyond the AI boom: three low-risk stocks with long-term promise

Two companies that we consider fit the bill are ADP and Accenture. Automatic Data Processing (Nasdaq: ADP) is a high-quality, defensive compounder with a dominant position in global payroll and management software. It benefits from massive scale, deep regulatory expertise, and high switching costs, supporting recurring revenues and strong client retention. Structural tailwinds – outsourcing, workforce complexity, and cloud adoption – support steady mid-single-digit growth, making ADP attractive to long-term, low-risk investors. We think it may well benefit from AI being deployed, rather than suffering.

Accenture (NYSE: ACN) is a global leader in IT consulting and digital transformation. It benefits from long-term structural tailwinds, including cloud migration, data and AI adoption, cybersecurity, and initiatives to improve companies’ efficiency. A largely variable cost base supports margin flexibility through cycles, while strong free cash flow underpins consistent capital returns. Its execution track record and exposure to mission-critical spending make it a high-quality compounder over time. As AI becomes ubiquitous in the global economy, we expect it to bolster demand for Accenture’s services and improve margins.

A separate but attractive opportunity, unrelated to AI, is Novo Nordisk (Copenhagen: NOVO-B), a pioneer in anti-obesity medications. The stock has slid by 70% in 18 months, which we believe reflects overly pessimistic views on competitive and pricing pressures, rather than any permanent impairment of the franchise.

Novo remains the clear number two in a structurally attractive, underpenetrated global obesity market expected to burgeon over the next decade. Novo’s valuation has fallen to 13 times earnings at the lows – well below historical levels – despite exceptional returns on capital and strong cash generation.

New leadership, strategic pricing moves to expand access (notably with oral GLP-1s), and a credible next-generation pipeline led by CagriSema all bode well. Sentiment and expectations have overshot fundamentals, creating an attractive entry point with asymmetric upside as growth normalises from 2027 onwards.

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Edinburgh Investment Trust aims to deliver an attractive long-term total return of both income and capital growth. This enables Edinburgh to meet its objectives, which are to exceed the total return on the FTSE All-Share index and grow its dividend faster than UK inflation.

We seek firms with deep economic moats (enduring competitive advantages) that underpin attractive future returns. The process is flexible, with an open-minded approach to the type of investments held: holdings include growth, value and recovery stocks. The portfolio holds 43 stocks and is well diversified both economically and thematically.

Shareholders also benefit from several of the features of the investment-trust structure. For example, the company has long-term debt equivalent to 9% of gross assets, which should enhance long-term returns. It is also buying back its shares, taking advantage of the modest share-price discount to net asset value (NAV) and providing a boost to the NAV per share for remaining shareholders. The following three holdings illustrate how our investment process generates attractive investment opportunities.

Three companies with economic moats for capital growth and income

Rightmove (LSE: RMV) is a strong company going through a period of change. It benefits from the network effect of more users (consumers) driving more customers (estate agents) to the site. With an 85% share of the time spent on all property portals in the UK, estate agents have little option but to use the site as otherwise properties risk not being viewed. As a result, Rightmove’s economic moat is firmly established.

However, moats do need investment to retain their strength. Rightmove is seeing an acceleration of investment – and a short-term impact on margins – to help the business take advantage of developments in the arena of artificial intelligence and to ensure a robust internal infrastructure. The management team is clearly thinking about the future and positioning the firm for the greatest chance of continued success in a changing competitive environment and backdrop for AI.

Oxford Instruments (LSE: OXIG) is a medium-sized UK-listed scientific instruments company. Oxford Instruments was the first commercial spin-out from Oxford University, having started life in the garden shed of its co-founder, Martin Wood. The company sells high-end scientific equipment into the semiconductor, materials-analysis, healthcare and life-sciences markets. The group should be able to grow sales at between 5% and 8% per year in the medium term, combined with strong and improving margins, returns on capital and cash conversion. Strong scientific expertise explains the firm’s deep moat.

Finally, Howdens (LSE: HWDN), the British market leader in kitchens, is an illustration of how scale can be used to deliver a powerful economic moat. Howdens sells directly to builders and installers. Most of its products for kitchens and new growth areas, such as fitted wardrobes, are manufactured in-house, giving it control over quality and costs, and resulting in a highly competitive and reliable offering.

Howdens also manages its own logistics operation with a nationwide network of 900 depots, ensuring that its trade customers are in close proximity. The group’s economic moat of scale results in lower costs, higher-quality products, faster delivery times and increased reliability and convenience for its trade customers. Howdens now holds 40% of the UK kitchen market – and with this business model we think there is further to go for in the years ahead.

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Investors searching for high growth often overlook the plumbing of the financial world. Yet the infrastructure that allows global markets to function is currently undergoing change. Beeks Financial Cloud is a Scottish technology firm at the heart of this change. By providing ultra-fast cloud computing and connectivity for the world’s most demanding traders and exchanges, Beeks is carving out a lucrative global niche. The company uses an unconventional pay structure that rewards staff heavily with shares, but the underlying investment case should be of interest to growth investors.

Beeks Financial Cloud's promising partnerships

To understand what Beeks Financial Cloud does, it helps to think of the global financial markets as a high-speed rail network. In this world, the big stock exchanges are the stations where all the buying and selling happens. To make money, professional traders need their “trains” (their data and orders) to arrive at these stations fastest. If your connection is even a fraction of a second too slow, the price you wanted is gone.

Most people use the cloud for things such as photos or emails. It is flexible and cheap, but slow. Beeks provides a private, super-fast service for those who need speed. It builds and manages the physical infrastructure that sits inside the same buildings as stock exchanges.

Companies rent out the use of Beeks’ platform so they do not have to build their own expensive infrastructure. Instead, they plug in to Beeks to get the speed they need. Beeks handles all the complicated hardware, allowing the traders to focus on their strategies. Recently, Beeks has even started partnering with the exchanges themselves. When a new trader joins a major exchange, they are often using Beeks’ technology without even knowing it.

The future for Beeks looks bright because it has moved from being a simple technology seller to becoming a partner of large financial firms. In the past, Beeks sold one-off services to smaller trading firms. Today, it is winning multi-year contracts with banks and stock exchanges. This is important because it makes the income of the company much more predictable. Once an exchange integrates Beeks into its system, the cost and hassle of switching to a rival become almost impossible to justify.

A major driver of this growth is its Exchange Cloud product. Beeks has already signed up seven major exchange groups, including those in Australia and Canada. Beeks is now using a revenue-sharing model, which means as more traders join those exchanges and use Beeks’ infrastructure, it makes more money. It is a highly scalable way to grow – Beeks can increase its profits without having to find every customer itself. The exchange does the selling for it.

Beeks Financial Cloud is expanding global reach

The company is also expanding its global reach. A recent deal in Latin America will see Beeks support trading across Chile, Colombia and Peru. Meanwhile, major banks in South Africa and Canada signed five-year deals to use Beeks for their high-speed trading needs in London. Beeks typically starts with a small project for a client and then grows that relationship into a much larger partnership over several years.

Finally, Beeks is staying ahead of the competition through its own technology. Its new Market Edge Intelligence tool gives traders a level of detail on their trades that standard cloud providers struggle to match. By focusing on the most demanding portion of the global trading market, specifically the firms that need the absolute fastest speeds, Beeks has carved out a niche where it can charge premium prices and maintain high profit margins.

One aspect of Beeks that might raise an eyebrow for some investors is its unusual approach to pay. The company makes heavy use of equity, meaning it pays staff and executives partly in company shares rather than just cash. The chief executive, Gordon McArthur, famously takes a very low basic salary to keep costs down. While this might look odd on a balance sheet, it is important to understand what this means for you as a shareholder.

In simple terms, this structure aligns the staff interests with investors’ interests. When staff are paid in shares, they only really win if the share price goes up over the long term. This acts as an incentive for the team to stay focused on growth and efficiency. If the company does well, they do well. For a growing business, this can be smarter than paying large cash bonuses. By using shares, Beeks keeps more of its cash available to reinvest in expansion.

There is a trade-off. When a company issues new shares to pay its staff, it can lead to dilution. This means an investor’s slice of the company pie gets slightly smaller because there are more slices in existence. But in the world of technology, talent is everything. If Beeks can attract and keep the best engineers by giving them a stake in the business, the overall value of the company is likely to grow much faster.

This pay structure is unusual, but it is a sign of a founder-led culture. Doubters might focus on the size of share awards, but the reality is that this model creates a motivated workforce. For a company aiming to dominate a global niche, having a team that thinks like owners is a major advantage.

Beeks is successfully selling into a fast-growing market and carving out a global niche the tech giants can’t easily compete with. The company has proved it can win over the biggest names in finance and turn those wins into steady income. By staying focused on high performance and deep partnerships, it is building a solid platform for the years ahead. If Beeks continues on this path, it could become significantly more valuable over time.

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Emerging markets came into focus over the course of 2025 amid a volatile global backdrop. Heightened geopolitical tensions and uncertainty over US trade policy caused periodic bouts of weakness, as investors assessed the potential impact of tariffs on global trade and growth.

However, these concerns also contributed to a weakening of the US dollar, a dynamic that has tended to be supportive for emerging markets by easing financial pressures and allowing for more flexible policy. This trend was reinforced as some investors began to reassess the risks of over-concentration in US assets and diversified more actively into other markets.

In this environment, opportunities across emerging markets have remained uneven and recovery has played out differently by country and sector, with stronger momentum in parts of Europe, in technology-linked markets in Asia, and a more cautious – but improving – outlook in China. Against this backdrop, active stock selection is critical. The following three stocks reflect our approach to investment.

Focus on technology to profit from emerging markets

National Bank of Greece (Athens: NBG) reflects the ongoing repair of parts of Europe’s financial system. Greece has emerged as one of the clearer recovery stories, supported by improving macroeconomic fundamentals, resilient private consumption and a sustained reduction in public debt, culminating in a return to investment-grade status.

NBG has completed a long period of restructuring and now benefits from a large deposit base and strong capital ratios. The resumption of dividend payments after a 16-year hiatus reflects the strengthening of its balance sheet and operating position, as well as a more stable domestic backdrop.

Within the technology sector, Taiwan Semiconductor Manufacturing Company (Taipei: 2330) provides direct exposure to sustained investment in AI and cloud computing. Increased capital spending by global technology firms has driven demand for advanced semiconductors, where manufacturing capability and scale are critical. As the world’s leading producer of advanced chips, TSMC is a leading beneficiary of this demand. Its technology underpins applications ranging from AI to cloud infrastructure, and its position within global supply chains reinforces Taiwan’s importance as a semiconductor hub. This combination leaves TSMC well placed to benefit as investment in advanced computing capacity continues.

Tencent (Hong Kong: 700) operates one of China’s largest internet platforms, spanning online gaming, digital advertising and cloud services. Earnings growth has been driven by unexpectedly high revenues from gaming, AI-enabled improvements in advertising, and a recovery in the cloud business. The company has also sharpened its focus on capital discipline, reflected in an increased emphasis on dividends and returns for shareholders.

This progress comes despite a more mixed market backdrop in China. Targeted policy measures have recently helped stabilise sentiment, while innovation remains a defining feature of the technology sector. Developments such as the launch of the DeepSeek AI platform underline China’s continued role in AI, supporting longer-term demand for cloud, software and digital services – areas where Tencent remains well positioned.

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Most people have never heard of trade-credit insurance, but without it a large segment of the global economy would cease to function. Trade-credit insurance protects firms against the risk of customers failing to pay, particularly when selling goods or services on credit with extended payment terms, such as 30 or 60 days. If the customer runs out of money or simply refuses to pay, insurance can help cover some of the loss. This risk-absorbing buffer isn’t just a necessity for companies, but also for the economy as a whole. If one large customer goes bust and doesn’t pay its suppliers, the cascade effect on the rest of the economy can be hugely damaging.

The collapse of construction group Carillion is an excellent case study. When it collapsed in 2018, it owed around £2billion to its 30,000 suppliers. The week after it foundered, the Association of British Insurers said just £31million of this was covered by trade-credit insurance. Other suppliers, many of which were small businesses with an average debt of £141,000, had to swallow the loss. The collapse sent shivers through the UK construction sector and pushed thousands of small businesses over the edge.

The market for this type of insurance is dominated by an oligopoly, with the “big three” companies controlling 75% of the global market and a number of smaller, state-backed players making up the remainder. Compagnie Française d’Assurance pour le Commerce Extérieur, or Coface (Paris: COFA), was founded in 1946 by the French state to provide a state-backed guarantee for exporters. Over the following decades, the group transitioned from being a state entity to a publicly listed global player, becoming the third largest of the big three. It currently sits behind Atradius and Allianz Trade. The latter has a market share of around 34%.

In today’s globalised world, operating an international trade-credit business requires a large volume of data, proprietary data, and an understanding of international trade risks. Coface operates directly in 100 countries and covers 200 countries through its partners. State backing in its early days helped it build the data needed to underwrite profitably and efficiently around the world. Today, the group has the size and the scale to maintain its competitive advantage, with more than 70 million corporate datasets. Over the past five years, Coface has doubled down on its data advantage.

How Coface uses business intelligence

In 2017, Coface’s management team launched a new product to further monetise the group’s vast corporate credit database. The company launched a business information unit to cross-sell the data it gathers in the normal course of business. Data on the financial health of different businesses is particularly helpful for large global corporations, which can use the information to test the resilience of their supply chains. Customers can also use the data to determine whether they should buy trade-credit insurance in the first place or manage the risk in-house. This might look as if the company is giving away the crown jewels, but the additional gathering, analysis and distribution of data has helped it enhance its own databases.

Analysts at investment bank Berenberg point to Coface’s underwriting margins as a sign of its expanding competitive advantage. During the first nine months of 2025, the company reported a combined ratio (a key profitability metric for insurers) of 71.9% net of reinsurance, below Allianz Trade’s 82.1%, suggesting it is far better at underwriting risk than its larger peer (anything below 100% means the company is underwriting profitably). To put these numbers into perspective, the global reinsurance market as a whole reported a combined ratio of around 90% last year, with the ratios for personal lines and property and casualty closer to 97%.

Since 2017, the data services business has grown to 4% of group revenues and the number of staff employed has grown to around 16% of the group’s 4,800 employees. Initially, management pencilled in 2027 as the break-even year for this division, although it’s now pushing that back as it ramps up investment. Berenberg estimates that revenue here could grow by as much as 15% per annum, driven by growing demand for credit data and the existing size of the market. While trade-credit insurance will remain the company’s most significant revenue line for the foreseeable future, this business of selling and collecting data could become a significant money-spinner for Coface from recurring fees and limited risk.

Should you invest in Coface?

Coface is an established player with key competitive advantages in a niche market. It’s also backed by Arch Capital, a large global reinsurer with a market capitalisation of $33billion (more than ten times that of Coface) and $70billion of assets. Arch bought a 29.5% stake in Coface from Natixis in 2020, a vote of confidence amid pre-Covid uncertainty. The stability provided by having Arch as a shareholder has undoubtedly helped the company compete with Allianz Trade, which is backed by the Allianz parent group with $1trillion in assets.

Despite all of these attractive qualities, Coface is trading at a relatively undemanding valuation. The shares are trading on a price-earnings (p/e) ratio of just 9.4 for 2026 and a price-to-book (p/b) ratio of 1.2. A p/b of around 1.5 times would be more appropriate for such a highly profitable insurer. It has also set a dividend payout ratio of 80% and, on average, has distributed 90% of its earnings since 2020, according to Berenberg’s analysis. Based on current projections, the yield could hit 9.2% in 2026.

Trade-credit insurance might not be the most exciting product around, but it’s a vital part of the economy and, for Coface, it’s a very profitable business. Investors should take note.

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One of the recurring themes of this column is that some of the best opportunities are provided by firms in industries that aren’t glamorous but are important. One industry that certainly fits the bill is pest control. If you run a restaurant, you’ll know how vital pest control is to your survival, as no one wants to eat in a place with flies in their soup – or worse. Similarly, as emerging markets become richer and people move into cities, their tolerance for pests dwindles. Rentokil Initial (LSE: RTO) is one company perfectly positioned to take advantage.

Founded in the UK just over 100 years ago, Rentokil dominates the UK market and has expanded overseas by acquiring companies in other countries and integrating them into the Rentokil brand. The most notable of these purchases was US company Terminix in 2022, which made Rentokil the largest company in the US, the biggest market in the world. Rentokil is now the world’s biggest pest-control company, operating in 90 countries, including virtually all of the world’s largest cities.

Rentokil Initial has ambitious plans for growth

The global pest-control market is expected to grow by 5%-6% a year over the next few years, and Rentokil has ambitious plans for giving its growth a further fillip. Firstly, it wants to expand into the countries where it doesn’t have a presence. It is also investing in digital technology to make its operations more effective and to keep costs down.

The group also plans to expand its hygiene and washrooms business, which currently accounts for 20% of its revenue. At the same time, the sale of its workwear business to HIG Capital in October 2025 will not only make it a tidy sum of money but will also help keep the company streamlined and focused. Rentokil has seen its revenue double between 2019 and 2024, while its earnings per share have gone up by nearly two-thirds during the same period (and are expected to keep growing rapidly over the next few years). The company makes a solid 7% return on capital employed, a key gauge of profitability, and boasts a double-digit operating margin, which has helped it increase its dividend sixfold from 2019, while still investing in the business and keeping debt at manageable levels. All this more than justifies the fact that it trades at 19.4 times 2026 earnings; the stock also offers a dividend yield of 2.2%. In addition to strong fundamentals,

Rentokil’s stock has plenty of momentum. Over the second half of 2025, Rentokil was one of the stars of the FTSE 100, rising 38%. As a result, the shares trade well above their 50 and 200-day moving averages. With several brokers, including Morgan Stanley, recently upgrading Rentokil, I suggest that you buy it at the current price of 471p at £6 per 1p. In that case, I would put the stop-loss at 316p, which would give you a total downside of £930.

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We have two portfolios: one focusing on capital growth and one on income generation with potential for capital growth. For investors focused on the former portfolio, The Schiehallion Fund (LSE: MNTN) is a late-stage private-equity investment company managed by Baillie Gifford.

The group has had a tricky few years as late-stage growth investing moved sharply out of favour. However, we now see clear “winners” of its investment approach, with some of its largest holdings, namely Elon Musk’s SpaceX (which comprises 14% of the portfolio) and digital acquisition-focused Bending Spoons (15%), achieving valuation levels rarely found in private equity. With the listings market potentially warming up once again, The Schiehallion Fund contains valuable assets that may potentially be revalued further into a listing on the public market. Meanwhile, investors can access Schiehallion shares at a 17% discount to the sum-of-the-parts valuation.

Income generation with potential for capital growth

For investors concentrating on income generation with potential for capital growth, 3i Infrastructure (LSE: 3IN) is a company that invests in private European infrastructure businesses. Its long-term record is exceptional, with an annualised total return of 13% since 2015. The group’s approach to investing in infrastructure gives it significant influence over its portfolio companies, many of which enjoy highly contracted cash flows supporting predictable returns for investors.

The trust’s jewel in the crown is TCR, the largest independent lessor of airport ground-support equipment, operating in 230 airports across more than 20 countries. TCR is now confirmed for sale, which has the potential to be beneficial for performance if an uplift versus carrying value can be achieved.

Meanwhile, 3IN’s current dividend yield is 3.5%, and the company has grown its dividend ahead of inflation over the past five years – a difficult feat in the high-inflation environment investors have experienced in recent times. Investors can access 3i Infrastructure’s shares at a discount of around 7% to the sum-of-the-parts valuation.

For investors focused on a blend of capital growth, income generation and diversification from exposure to developed markets, Invesco Asia Dragon Trust (LSE: IAD) is an investment trust concentrating on Asian equities. Asian and emerging-market equities have suffered a lost decade. While economies have grown, corporate earnings growth has stalled: earnings per share (EPS), measured in US dollars, are close to the same level as in 2015.

We believe Chinese technology companies remain some of the world’s most innovative businesses, and are now showing meaningful signs of being friendlier to shareholders, such as embarking on large share buybacks and introducing dividends.

IAD’s managers, Fiona Yang and Ian Hargreaves, have demonstrated a strong ability to generate performance in different market environments, using a highly stock-specific investment approach. Furthermore, the trust pays shareholders an aggregate dividend equivalent to 4% of its prior financial year-end net asset value (NAV) in four equal instalments, providing a balance of income to investors as well as exposure to Asian equities with strong growth potential.

The extra income is achieved by using the company’s reserves – a defining feature of an investment trust versus an open-ended fund – to top up the natural income generated, allowing the managers to invest freely rather than target solely high-yielding stocks.

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PayPoint (LSE: PAY) is a household name across the United Kingdom, and its yellow brand signs are a staple of the local corner shop. Most people recognise the company for its role in helping customers pay utility bills or top up pre-payment meters with physical cash. However, the business is changing as it moves away from its traditional roots toward a digital future.

The company is offering other services in an effort to remain relevant in a digital world where cash use is on the decline. The shares’ high dividend yield is attractive to income-seeking investors. However, last year the shares were among the weakest on the UK market, which may present an attractive entry price. But buying is not without risks – the company has to manage its shift from cash to parcels and digital payments wisely.

PayPoint is building community hubs

PayPoint was founded in 1996 and built its business by enabling cash-paying households to top up gas and electricity pre-payment meters in local shops. The company’s ubiquitous “yellow box” terminals became a familiar fixture on British high streets and formed the backbone of its early revenues. This was a successful model during the era when the UK energy market was expanding and many households used pre-payment meters. As we moved more toward digital payments, however, the leadership team realised that relying solely on cash transactions was a risk.

In recent years that team has sold off parts of the business that were not a good fit for the new strategy, while buying companies that would allow for growth. Today, PayPoint operates solely in the British Isles, having sold its Romanian operations. This move allowed the group to focus entirely on the UK and Ireland, and provided the funds to buy Love2shop and to invest in open banking technology.

PayPoint operates through four core divisions, which together support more than 65,000 retail partners. The shopping division supplies shopkeepers with advanced payment terminals, enabling everything from card payments to local banking services through its BankLocal operation. E-commerce leverages the same retail network to handle parcel collection and returns through Collect+, allowing customers to pick up and drop off packages locally. The payments and banking division helps utility providers and charities collect money in the form of both physical cash and digital payments. Finally, Love2shop focuses on gift cards and employee-reward programmes.

Collectively, these divisions drive footfall into local shops by turning them into multiservice community hubs. BankLocal, for example, allows independent retailers to function as local bank branches in areas where high-street banks have withdrawn. This creates a clear incentive for retailers, as customers using PayPoint’s services often make additional purchases while in the store.

The business model itself is highly attractive. PayPoint owns the software and the network, rather than the physical shops or delivery vehicles. As a result, it avoids heavy capital expenditure, keeps operating costs low and generates strong, consistent cash flows.

This cash generation is the reason the company can offer a high dividend yield of more than 6.5% to its shareholders. The company also pays special dividends when it sells assets or performs well. For example, a special payment of 54p per share was made this summer following a deal with Royal Mail. The management team aims to grow these returns further by buying back 20% of the company shares by 2028.

How PayPoint is leaping market hurdles

However, the road has not been entirely smooth and the share price has faced significant pressure recently. One major issue was that the company reported lower profits despite seeing a small rise in revenue. The market was also unhappy when management pushed back a key target of reaching £100million in underlying earnings.

These delays caused the shares to fall by nearly 20% in a single day. There were also operational problems in the parcel division, where merging different delivery networks caused more disruption than expected. Some of the newer parts of the business, such as the open banking service, have also been slower to make money than many had hoped.

The company must also deal with the long-term decline of cash as more people use cards and mobile phones for everything. PayPoint has tried to turn this into an opportunity by offering services for digital banks, but the competition from financial technology firms remains intense. Newer companies such as Square and SumUp, which provide retailers with affordable card readers and point-of-sale technologies, are fighting for the same small-business customers with low-cost payment tools. This puts the business on the back foot as it seeks to evolve. That said, the firm does have the advantage of its large network of retailers already using its services.

PayPoint has also had to settle a legal issue with the energy regulator, which allowed more competitors to enter its traditional market. These risks partly explain why the share price has remained at a lower level, even though the company continues to pay out a lot of money to its investors.

Should you invest in PayPoint?

PayPoint is a business that is trying hard to remain relevant in a changing world. It has moved from being a simple cash-payment service to becoming a technology partner for retailers and a logistics hub for parcels. The management has shown that it is willing to take decisive actions to avoid being stuck in the past.

While there are clear risks from competition and the move away from cash, the business remains very efficient at generating money. For an investor building a portfolio of stocks that pay a high income, this company offers a unique blend of traditional reach and modern services. For investors looking for a steady stream of income, who can look past the recent volatility, PayPoint might be an interesting investment.

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The Aberdeen New India Investment Trust seeks to deliver long-term outperformance by investing in exceptional Indian stocks. Our bottom-up approach targets quality businesses benefiting from India’s structural growth. We focus on five key traits: resilient business models, strong finances, supportive industries, capable management teams, and robust practices in the field of environmental and social governance (ESG).

Stock selection drives returns, so we remain agnostic with respect to sectors and benchmarks. If a company fails our quality threshold, we don’t own it – even if it’s a market leader. We also avoid stocks priced beyond their earnings potential. The result is a focused, high-conviction, all-cap portfolio of India’s best ideas. And because quality typically holds up better in periods of volatility, the fund can offer a defensive edge in downturns.

Three Indian stocks to consider for your portfolio

Bharti Airtel (Mumbai: BHARTIARTL) is one of India’s leading integrated telecom providers, offering mobile, fixed-line, broadband and enterprise services. Known for its strong balance sheet, disciplined execution and cost control, Airtel is riding the wave of smartphone adoption and the rollout of 5G-mobile networks.

With more than 280 million smartphone data users, Airtel’s subscriber base continues to expand, driving higher average revenue per user and increasing market share. India leads the world in data generation, and Airtel is well positioned to capture this rising demand.

The country has the world’s second-largest online population and the most active market for large-language model (LLM) users, while offering some of the lowest data costs globally: an estimated £1.50 per month for between 20 and 30 gigabytes GB. In a sector that has consolidated from 12 players to three, Airtel stands out as the most commercially savvy and financially disciplined operator.

Mahindra & Mahindra (Mumbai: M&M) is a powerhouse in agriculture. From SUVs to tractors, it dominates India’s vehicle sector: it is the country’s top tractor maker with a 43% market share. Agriculture may not drive GDP growth, but as the sector is one of India’s largest employers, demand for farm machinery remains strong. Given low levels of mechanisation, we believe tractor sales could grow by an annual 10% over the next few years, providing cash flow for Mahindra’s push into premium vehicles and electric vehicles (EVs) – locally made and competitively priced.

This dual strength allows Mahindra to profit from India’s structural growth. The stock has delivered solid gains this year despite market headwinds, reflecting its excellence in innovation and execution. Mahindra is primed for sustainable growth and margin expansion, making it a compelling long-term opportunity.

Aegis Logistics (Mumbai: AEGISLOG) is India’s leading integrated oil, gas, and chemical logistics player. It has launched a two-phase $5billion capital-expenditure plan to drive long-term growth.

Aegis boasts a first-mover advantage at key ports and is expanding capacity. Fundamentals are solid too: a net cash position since 2018, a strong balance sheet, and management that consistently delivers. Meanwhile, India’s rising demand for liquefied petroleum gas (LPG), the shift away from fossil fuels, and domestic supply lagging consumption have all pushed natural-gas prices higher, benefiting Aegis.

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Vaccines prevent the spread of disease and protect people from serious illnesses. The World Health Organisation (WHO) has designated the last week of April as “world immunisation week”, during which it promotes the power of vaccines. Since 1974, vaccines have saved 154 million lives worldwide and reduced infant deaths by 40%. The value of the vaccine market has increased by an annual 15% over the last five years. Vaccines work by stimulating the body’s immune system to produce antibodies that fight off viruses and bacteria. Since vaccines were introduced, diseases such as smallpox, polio and tetanus, which used to kill or maim millions of people, have become rare or extinct.

Edward Jenner, an English doctor, created the first successful vaccine. He discovered that milkmaids infected with cowpox were immune to smallpox. He then inoculated an eight-year-old boy, James Phipps, with matter from the cowpox sore on a milkmaid’s hand. James felt unwell for a few days, but quickly recovered. Then, two months later, Jenner inoculated James with matter from a human smallpox sore, but James remained in perfect health and thus became the first person ever to be vaccinated against smallpox.

British children now have a whole series of NHS vaccinations starting at eight weeks old – protection against diphtheria, hepatitis B, polio, tetanus, and whooping cough – continuing through early childhood and their teenage years, when they receive treatments against meningitis, HPV and sepsis. Over-65s are offered the annual “flu jab” as well as pneumococcal, shingles and respiratory syncytial virus (RSV) vaccines. Vaccines are also needed for pandemics, as Covid reminded us.

The rise of cancer vaccines

In addition to the traditional vaccines mentioned above, there is a promising new class of therapeutic vaccines that can treat diseases such as cancer. Cancer vaccines are different from the usual vaccines that teach the immune system to recognise a pathogen ahead of an infection. Instead, a cancer vaccine uses proteins produced by cancer cells – antigens – to provoke a strong response to existing tumours. In other words, they work by stimulating the body’s immune system to recognise and attack cancer cells.

There are three key mechanisms for doing this. The first is to deliver tumour antigens to dendritic immune-system cells (specialised cells with a tree-like shape). These present them to other cells in the immune system, which respond to the cancer. The second is to activate a particular type of immune-system T-cell (white blood cells crucial to fending off disease), which can attack tumour cells directly. The third is to target specific proteins absent in normal cells, but present in cancer cells. Many approaches are highly personalised and these include making use of mRNA technology, which primes the immune system to fight cancer cells. For some types of cancer, a less personalised approach is possible using antigens shared by many people.

Several clinical trials are in progress using cancer vaccines. For example, a phase-I trial (the first of three phases of clinical trials) of an mRNA vaccine produced by BioNTech started last year at University College Hospital in London for non-small-cell lung cancer. And a phase-II trial at Memorial Sloan Kettering Cancer Centre is in progress using a personalised mRNA cancer vaccine from BioNTech and Roche for pancreatic cancer, one of the most deadly of all cancers.

Research is also underway to identify new cancer vaccines with GSK, for example, which is investing £50 million into a three-year partnership with Oxford University to develop new approaches to cancer vaccines by delving into the pre-cancer biology. Several biotech and pharmaceutical companies now have cancer vaccines in their pipelines.

A few early cancer vaccines are already on the market. An example is BCG, made by Merck and used to treat early stage bladder cancer. And Adstiladrin gene therapy from Ferring Pharmaceuticals is used to treat bladder cancers that have progressed despite treatment with BCG. Provenge from Dendreon Pharmaceuticals, a vaccine made from a patient’s own dendritic cells, treats metastatic prostate cancer.

A burgeoning vaccine subsector

Fortune Business Insights predicts that global vaccine sales will rise from $85 billion in 2024 to $179 billion in 2032. The main drivers of growth are the increasing incidence of infectious diseases, higher funding for research and development (R&D) in the vaccine subsector and the emergence of next-generation vaccine technologies, such as the mRNA approach used for Covid vaccines. For example, the US Department of Health aims to accelerate the development of next-generation vaccines through public-private partnerships with an initial investment of $5 billion.

The global vaccine market was dominated by Covid vaccines in 2021, when they comprised 70% of the market by value, but this figure dropped to 28% by 2023 and 15% in 2024. Aside from Covid vaccines, the three largest ones by value in 2023 were those for seasonal flu, PCV (against pneumonia, meningitis and ear infections) and HPV (which tackles sexually transmitted HPV infection, genital warts and certain cancers such as cervical cancer).

A WHO report highlights global patented vaccine-market shares by company for 2022, excluding Covid vaccine sales. The market shares of the top six vaccine companies are Merck (with 24%), GSK (21%), Pfizer and Sanofi both (15%), CSL of Australia (3%) and SII, the Serum Institute of India (2%). There are 45 other companies, most with market shares well below 1%. The subsector is very concentrated: in 2023 (and including Covid), just five companies accounted for 79% of the global market by value, with seven firms (the six above, plus Moderna) making up 84%. The US is by far the largest market for vaccines by value.

In addition to the large pharmaceutical companies mentioned above there are others with smaller vaccine interests as a percentage of total sales, such as Novartis and AstraZeneca. Then there are several much smaller vaccine companies. These include Novavax, Sanaria, Inovio Pharmaceuticals and Bavarian Nordic, together with Moderna and BioNTech, which pioneered mRNA Covid vaccines, but are now using mRNA technology to develop cancer vaccines and treatments.

The top five vaccine companies

Merck, GSK, Pfizer and Sanofi have the largest vaccine sales, while CSL’s are much smaller. Last year’s sales provide the best guide to companies’ relative standing in the vaccine market and to their vaccine sales as a percentage of total sales. Merck had 2024 vaccine sales of $13.5 billion, 21% of total sales. Pfizer produced vaccine sales of $13.2bn (excluding Covid ones), or 20.7% of total sales (29.1% if Covid vaccines are included).

GSK’s vaccine sales were $10.3 billion, or 25.9% of its total, and Sanofi’s vaccine sales reached $8.3 billion or 20.2% of its total. CSL has vaccine sales of only $1.4 billion (20% of total sales). In 2023, the four vaccines with the largest global sales by value excluding Covid were HPV, PCV, seasonal flu and shingles, in that order. GSK makes all four types, as does Merck, although its shingles vaccine (a joint development with Sanofi) has been superseded by GSK’s Shingrix. Pfizer makes PCV and Sanofi just makes the flu treatment.

Promising pipelines of pharmaceutical companies

The number and quality of vaccines under development in pharmaceutical companies’ pipelines helps us understand which players are likely to gain market share in future years. We start with the four largest vaccine companies. GSK was first to market with a RSV vaccine in 2023. It has just presented a new one to regulators, while it also has two others in phase III (meningitis and varicella) and ten in phase II. Merck has HPV and pneumococcal vaccines under review for approval, a cancer vaccine in phase III and two in phase II (dengue fever and cancer). Pfizer has three vaccines in phase III (Covid, Streptococcus, Lyme disease) and four in phase II. Sanofi has four vaccines in phase III (yellow fever, pneumococcal, rabies and flu for over-50s) and five in phase II.

Moving on to some of the smaller companies mentioned earlier, some of them have surprisingly strong pipelines. Clinical trials have established that Sanaria (a non-profit group) is developing a gene-edited malaria vaccine giving 90% protection. Moderna and BioNtech are using their mRNA platforms to develop new vaccines. Moderna has its own Covid and RSV vaccines on the market, but it has pruned its pipeline, with two projects terminated in November 2025.

BioNtech’s successful Covid vaccine was marketed by Pfizer and BioNtech is now using its mRNA technology to develop cancer immunotherapies as well as vaccines for infectious diseases. BioNtech is primarily focused on cancer, with eight cancer vaccines in over 20 phase-II and phase-III trials. BNT113, in phase-III trials for head and neck cancer, is the most advanced of the group. For infectious diseases it has four early phase trials (Mpox, TB, shingles and malaria).

The other smaller companies have modest pipelines. Novavax has a Covid vaccine on the market with Sanofi, a malaria with SII and four phase-II or -III trials (all Covid and flu). Inovio has Covid and HPV treatments in phase-III trials. Bavarian Nordic has six products on the market, but only one phase-II trial (equine encephalitis).

Where to look now in the vaccines market

Since vaccines only account for 20%-26% of the sales of the four largest companies, it is important for investors carefully to assess companies’ other products and the pipelines backing them up. The riskiest company is Merck, since its successful cancer drug Keytruda accounted for 46% of 2024 sales, but its primary patent expires in 2028. Furthermore, while Keytruda’s sales were up 18% over 2023, total sales excluding Keytruda were down 1% from 2023-2024.

Merck’s future will therefore depend on two potential growth drivers: acquisitions and the success of its 20 oncology drugs and vaccines in phase-III trials. These could yield several blockbuster products (products with annual sales over $1billion) over the next few years. The risk for investors lies in the possibility that these two routes may not prove to be as successful at driving growth as Merck hopes.

GSK’s productivity with respect to R&D has improved greatly over the last several years and it now benefits from a diverse pipeline covering four areas: oncology, HIV, infectious diseases and respiratory, immunology or inflammation problems. There are five drugs and two vaccines in registration with 15 drugs and seven vaccines in phase III. Bepirovirsen, a potential cure for hepatitis B, is completing phase III. GSK now projects that its revenue in 2031 will be £40billion, up from £31.4billion in 2024.

Pfizer’s large size (2024 revenue reached $63.6billion) gives it economies of scale and a powerful distribution network, which together constitute an enduring competitive advantage. The firm now focuses on four areas: oncology, inflammation or immunology, vaccines and internal medicine. However, it invests just 17% of revenue in R&D compared with Merck’s 27.9%. Eli Lilly has much smaller revenues of $45billion, but nevertheless invested more than Pfizer in R&D: 24.4% of revenue. Pfizer’s low R&D investment could account for the large number of product enhancements in its new drug pipeline – for example, two-thirds of its phase-III trials in oncology are product enhancements.

Sanofi’s 2024 revenue was €41.1billion ($48.1billion), up 6.5% from 2023, with R&D of 18% of sales. Sanofi focuses on immunology, rare diseases, oncology, neurology and vaccines with almost half the phase II and regulatory submissions highlights in immunology. Several programmes are carried out in collaboration with Regeneron Pharmaceuticals, which boasts Dupixent, an immunology drug with sales of €13.1billion in 2024, up 13.3% over 2023. Sanofi’s guidance for 2025 is for a mid-to-high single-digit sales increase.

Other large pharma firms with vaccine interests include AstraZeneca and Novartis. AstraZeneca’s 2024 revenue was $54.1billion, up 21% from 2023. It aims to deliver revenue of $80billion by 2030. It delivered the first Covid vaccine, has seasonal flu vaccines and vaccine manufacturing in Liverpool, the Netherlands, Belgium and Philadelphia. It also outsources manufacturing to firms in India (SII) and Germany. The company has scrapped its planned £450million expansion of its Liverpool vaccine-manufacturing plant because the Labour government reduced the investment incentive agreed with the previous government.

Novartis no longer focuses on developing vaccines itself, but instead supports production partnerships and manufacturing agreements with other companies. For example, it manufactured the mRNA Covid vaccine. SII, a private company, says it is the world’s largest vaccine manufacturer by number of doses. It primarily operates through partnerships with other pharma companies, such as with AstraZeneca over the latter’s Covid vaccine, and as a generic vaccine manufacturer. However, it has developed a small number of improved vaccines.

What to buy

Of the companies mentioned in the previous sections, seven in particular are worth examining as potential investments. These seven fall into two groups. The first – four lower-risk companies – consists of AstraZeneca (LSE: AZN), GSK (LSE: GSK), Pfizer (NYSE: PFE) and Sanofi (Paris: SAN). The second, a riskier collection, consists of Merck (NYSE: MRK), BioNtech (Nasdaq: BNTX) and Moderna (Nasdaq: MRNA). The latter two are loss-making.

AstraZeneca has a forward price/earnings (p/e) ratio of 18 and a forward dividend yield of 1.8%. The shares are up 88% in five years and the company intends to raise revenue by 48% between 2024 and 2030. GSK is on a forward p/e of 9.5 and a dividend yield of 3.5% and the share price has gained 35% over the last five years. It has a target of raising revenue 27% by 2030. Pfizer has a forward p/e of 8.4, a dividend yield of 6.9%, and the share price has dropped by 32% over the last five years (mainly because of falling profits from the Covid vaccine). Pfizer’s guidance for 2025 is for revenue in the range $61billion-$64billion – hardly impressive given that 2024 revenue was $63.6 billion. Sanofi has a forward p/e of 9.8, a dividend yield of 4.7% and the stock has gained only 6% over the last five years.

We have explained that the risk with Merck is of new oncology drugs failing to replace the massive revenues from its successful Keytruda cancer drug, whose patent expires in 2028. Merck’s forward p/e is 11.2 and the dividend yield 3.2%. The stock has gained 35% in five years. BioNTech has an interesting pipeline of potential cancer vaccines and continues to develop its Covid vaccine. It has a forward p/e of seven, no dividend and the share price increased by 16.8% over the last five years.

Investors looking for high-yielding dividend stocks may be tempted by Pfizer’s 6.9% forward yield at its recent price of $24.9, but those seeking growth with a reasonable dividend are more likely to go for AstraZeneca, with a yield of 1.8%. Astra is targeting a 48% revenue increase to 2030. Then there is GSK, with a yield of 3.5% and a cancer-vaccine partnership with Oxford University. Sanofi yields 4.7%.

BioNTech has a better pipeline than Moderna, with several conventional vaccines in development, together with its cancer vaccines and drugs that could become blockbusters. The firm could market them in partnership with selected big pharma companies with extensive distribution networks.

Merck, yielding 3.2%, has a large and interesting oncology pipeline and is less risky than BioNtech as it has a diversified set of products in vaccines (where it leads the field by revenue), animal health and drugs for diseases other than cancer. But the patent for its blockbuster cancer drug Keytruda expires in 2028. Your selection of investments from these six companies will depend on your appetite for risk, but could reasonably include two or three lower-risk companies and one of the two riskier ones.

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If you want proof that British manufacturing isn’t dead, take a trip to an unassuming stretch of Stoke-on-Trent. There, on the same site it has occupied since Victorian times, sits Goodwin (LSE: GDWN), a heavy engineering group that has become one of the most profitable specialist manufacturers in the country.

It may not be glamorous, but Goodwin produces the components that keep critical national infrastructure running, such as precision-cast nuclear-waste containers for Sellafield, high-integrity parts for naval propulsion systems and specialised valves for the liquefied natural gas (LNG) industry. These are the bits that no one can afford to get wrong; and its excellence in these areas is why Goodwin is so profitable. But following its tremendous run, can investors still afford the shares?

Goodwin is keeping it in the family

Goodwin was founded in 1883 by Ralph Goodwin and, unlike most of its peers, has remained firmly under family control ever since. The modern business is still chaired by a Goodwin, still run by Goodwins, and still majority-owned by the Goodwin family.

Normally that might raise questions about governance. In Goodwin’s case, it has been its greatest strength. Family ownership has allowed the group to invest patiently over decades, avoiding the usual temptation to juice short-term profits. Instead, it has focused on landing long-horizon contracts where quality and reliability matter more than price. This persistence explains why the business is so well respected in industry. Its decades of excellence give it the kind of reputation that is almost impossible for a newcomer to replicate.

One thing that sets the business apart is a bold strategy to embrace change rather than be hostage to it. Ten years ago, Goodwin looked tied to the oil and gas market. When oil prices collapsed, the company faced a choice: to shrink with the market or reinvent itself. It opted for reinvention. The group pushed aggressively into sectors with high barriers to entry, such as defence, nuclear power and other specialist markets where components require complex metallurgy and spotless quality records.

More striking is what comes next. Management, usually conservative to a fault, now expects pre-tax profits to double to more than £71 million this financial year. The firm has a record £365 million order book to back up that forecast, stretching over many years thanks to nuclear-decommissioning projects and the UK’s next generation of nuclear-powered submarines.

Goodwin’s financial discipline is unusual

Unlike many industrial companies, Goodwin is not a cyclical business that generates modest but unspectacular returns. It has become a high-margin supplier of mission-critical parts to programmes that governments and businesses cannot cancel.

Goodwin’s financial discipline is unusual. Instead of loading up on debt to fund new capacity, it uses what it calls a customer-funded investment model. In practice, this means major capital expenditure is tied directly to long-term customer contracts. The customer commits; Goodwin invests. It’s incredibly conservative and effective. Cash generation has surged. Net debt has collapsed and is heading for zero. The board has responded with a 111% increase to the ordinary dividend, plus a large special dividend for good measure.

In a market where many engineering groups rely on hefty borrowings or dilutive equity raisings to grow, Goodwin stands out. It’s expanding while also deleveraging. Most investors will be focused on that. Yet Goodwin has a second act that could be worth more than the whole group in time. That business is Duvelco, its advanced-materials subsidiary, built around a patented polyimide called Ducoya. This has chemical characteristics that make it ideal in industries such as aerospace, which supports exceptionally high margins as its customers place a premium on proven performance. Supplying these markets requires technical qualification and rigorous testing. This long, complex accreditation process creates exactly the sort of barrier to entry that Goodwin has historically excelled at building.

Goodwin has broken its rule by funding the new pressing facility entirely from its own cash. That’s unusual for a group that normally relies on customer-backed spending. Management clearly believes Ducoya could become a profit engine in its own right. Yet, for all the optimism, the forecasted doubling of profits to £71 million doesn’t include contribution from the subsidiary.

Goodwin is worth the premium

Goodwin’s promotion into the FTSE 250 has put it firmly on the radar of index trackers and mainstream funds. The shares have re-rated sharply and now trade at a clear premium to traditional industrial peers.

Is that a problem? Possibly. This is still a specialist engineering company with limited free float, large exposure to big government projects and a management team that communicates sparingly. Those factors can make the shares volatile. Yet few listed UK manufacturers can point to a multi-decade record of quality with a pipeline of government-backed projects. On top of that, it has a near debt-free balance sheet, rising margins and an exciting advanced-materials subsidiary. The premium multiple reflects this reality.

The shares aren’t cheap, but neither is what you’re buying. For patient investors willing both to tolerate limited liquidity and trust in the family’s long-term stewardship, Goodwin remains one of the few genuinely high-quality industrial compounders left on the London market. If you’re already on board, it’s a strong hold. If you’re not, it’s one to buy on any meaningful pullback.

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Some of the best investments are in businesses that operate in relatively unknown but essential markets, working in the background and fulfilling functions that other companies either don’t want to, or can’t afford to do themselves.

One such business is Restore (LSE: RST), the leading provider of physical and digital document-management services in the UK. It stores documents for public- and private-sector organisations, such as the NHS, and destroys old documents. There’s also a document-processing business (called Synertec), which helps companies send electronic and physical communications and a technology division (Restore Technology). All of these help the company’s customers manage their data, whether it’s on paper or in digital form.

Restore is beating expectations

In 2024, Restore generated £275 /million in revenue. The largest proportion of revenue (£170 million) came from the information management division, the one responsible for storing and managing documents. Despite the global shift over the past 20 years away from physical to digital documents, there’s still a vast and steady market for this kind of storage and Restore, as the largest operator in this area, has the economies of scale required to make it work.

The City has raised questions about the sustainability of this business multiple times over the past few decades, yet despite these concerns, the firm has consistently outperformed expectations. It’s helped that Restore has been able to move into new markets, such as operating a “digital mailroom”, which scans and digitises inbound and outbound mail for clients. It also manages exam papers and physical document processes within government agencies.

The second-largest division is a business called “DataShred”. This does exactly what it says on the tin. It’s the largest document-shredding operation in the UK, servicing tens of thousands of companies every year. The third and fourth key divisions are Harrow Green, which helps companies move office, and the technology business. Restore has found that companies moving offices need to digitise and destroy physical records, although they often choose to store old records as well. Despite this, the company agreed this week to sell Harrow Green for £5.5 million in cash to focus on the core business.

Restore's exciting potential

The technology business helps clients manage their tech assets, such as laptops and desktop computers, to ensure security throughout the asset’s life cycle. Some of its biggest clients here are public bodies, such as the Department for Work and Pensions. Restore helps the department set up new laptops, test laptops in use, and erase as well as repurpose laptops when they come to the end of their life. It can process thousands of laptops a day and has a two-week turnaround window to get each computer back into the workforce. Laptops that are not going to be repurposed for new joiners can be securely and responsibly disposed of.

This division currently accounts for just 11% of group revenue, but it has vast potential. Management has highlighted the AI product cycle, the release of Windows 11 and the beginning of the post-Covid technology refresh cycle as structural drivers for growth. The current best practice is for companies to refresh technology every three to five years. Overall, the firm has 500 active customers at present, served by 310 employees, with the capacity to refresh 13,000 assets a week.

The technology business has exciting potential over the coming years, but investors shouldn’t overlook the document side of the organisation. To bulk out this division, in March, Restore paid £33 million to acquire Synertec, which owns a proprietary software platform that helps clients communicate with their customers across different channels. Using the software, clients can upload customers’ communications to Synertec’s systems and select how they want the information to be distributed.

This can include documents printed in braille, for example, or communications sent out via text message. Synertec can turn around the client’s data request overnight, a key selling point for its largest client, the NHS, with which it recently agreed a new four-year framework set to start in the first quarter of next year. Synertec also works with clients such as P&O Ferries, Screwfix and Hotpoint.

A new direction for Restore

Despite its strengths, shares in Restore have declined by around 50% since the pandemic, even as adjusted profit before tax has risen from £23.2 million in 2020 to £34.4 million in 2024. Lack of confidence in the company’s strategy, multiple compression and general apathy among investors towards UK small caps all appear to be to blame.

However, after a change of management two years ago, the City is starting to come around to the growth story. Charles Skinner returned as CEO in 2023, after Charles Bligh, who joined as CEO in 2019, resigned. Skinner stepped down in 2019 following a decade at the helm of the group, during which time the shares returned more than 2,200%. Skinner has spent the past two years refreshing the group and its strategy, but the market is yet to factor in the changes.

According to analysts at Berenberg, the shares are trading one standard deviation below the 10-year average price-earnings (p/e) ratio of around 15; the same is true on an enterprise value to Ebitda basis. Berenberg has the stock trading at a 2026 p/e of 9.9 and a free cash flow yield of 8.3%.

Canaccord Genuity takes a similar view, with a p/e of 10 pencilled in for 2026 and a free cash-flow yield of 8.3%. What’s more, in its latest trading update, Restore reported growth ahead of market expectations, with margins returning above the medium-term 20% target, prompting a wave of analyst growth upgrades. This growth, coupled with a return to the company’s 10-year average valuation, could generate an upside of nearly 70% for the shares in the best-case scenario.

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It has been a busy year for large companies’ IT departments. Firms ranging from Marks & Spencer to Jaguar Land Rover (JLR) have seen their operations disrupted by cyberattacks. The incident at Jaguar is thought to have cost Tata (JLR’s owners) just under £2 billion. While not a cyberattack, the outage at Amazon Web Services in October also brought swathes of the internet to a halt, demonstrating that “when a single upstream provider experiences issues, the impact doesn’t stay contained; it cascades across industries”, says Fadl Mantash, chief information security officer of global pay-tech company Tribe Payments. Such cases are just the “tip of the iceberg”, according to Jonathan Frost, director of global advisory for EMEA at BioCatch. No wonder, then, that companies providing cybersecurity and resilience services are in demand.

Why cybersecurity is more important now than ever

The main reason cybersecurity and cyberresilience are so important now is that “an increasing amount of life is conducted online, with almost all our devices connected, in some way, including vacuum cleaners and washing machines”, says Marijus Briedis, chief technology officer at NordVPN. However, while people “still don’t fully realise how much data they are sharing and how much connectivity is happening”, there is a growing awareness that “they have to take care with their online activity and need some protection from the various threats… out there”.

This is particularly true of the post-Covid business world, “where people are increasingly working away from the office”, says Kate Steele, partner in the commercial dispute resolution team at Hill Dickinson. As a result, companies “are relying much more on technology, both in terms of remote working systems, but also things like AI”. And “all the various crime statistics suggest that there has been a huge increase year on year in every type of cybercrime, from data theft to online scams”, says Steele.

BioCatch’s Jonathan Frost, who previously worked at the City of London Police, notes that in the 2025 National Crime Survey, 1% of all UK companies said they had been victims of ransomware, where servers are hijacked, legitimate users locked out and then cash demanded to hand back control. While 1% may not seem much, “this works out to 19,000 firms across Britain, and represents a doubling of attacks since 2024”.

What’s more, companies may not have a choice as to whether they protect themselves, says Hill Dickinson’s Kate Steele. This is because governments and regulators are now recognising “that companies need to take action to defend themselves, as such attacks not only harm them, but also hurt their customers, employees and other people in their care”. Witness the UK’s Cyber Security and Resilience (Network and Information Systems) Bill, currently going through Parliament, “which places an obligation on critical sectors to report major incidents within 24 hours, with large fines if they don’t”.

It’s not surprising, then, that over the last five to 10 years, discussions about such cyberthreats are no longer “the background conversation that only took place in certain industries and businesses”, says Brendan Gulston, co-manager of the WS Gresham House UK Multi Cap Income Fund. Instead, cybersecurity is “a board level discussion that is mentioned in almost every annual report of most of most businesses, irrespective of industry”, says Gulston. Overall, data from accountants PwC suggests that around 85% of businesses expect their cyber budgets to increase over the next 12 months, says Zain Javid, cofounder and chief technical officer of Citation Cyber.

The three key threats to cybersecurity

NordVPN’s Briedis thinks the increasing number of threats stem from three main sources. There are the so-called “script-kiddies”, the kids “playing around the internet and trying to figure out how to hack your neighbour”. However, there is also an increasing threat from cybercriminals, many linked to organised crime, who are targeting companies. They typically either try to steal commercially sensitive data or launch ransomware attacks.

Even worse, “in a growing number of cases many countries now have their own cybersecurity groups that specialise in carrying out attacks”, says Briedis. Jonathan Frost agrees, noting that Europe “is facing increased hostile activity across cyber, infrastructure and information domains from regimes such as Russia”. These so-called “hybrid conflicts” are “below the threshold of war but above the threshold of normal state relations”. For example, this year “the Dutch authorities identified a cybersabotage attack on the digital control system of a Dutch public service”, which they eventually traced back to the Russian state. Russia is also considered the prime suspect for the JLR attack.

North Korea, too, is “always at or near the top of the list of hostile states, as is Iran and China”, says Chris Gannatti, global head of research for WisdomTree. He points out that earlier this month AI start-up Anthropic claimed that Chinese hackers had launched cyberattacks against them in an attempt to co-opt Claude, their AI system, so that it could be used for sinister purposes. With such a close connection in the digital world between data and sovereignty, “it’s unsurprising that the rise in geopolitical tensions has coincided with the rise in cyberattacks against civilian or government infrastructure”, says Axel Belorde, head of business development for EMEA & Asia at VettaFi.

AI is ushering in a new era of cybercrime

Anthropic’s experience highlights the fact that, as nearly all the experts I spoke to agreed, AI is showing “the ability to expand cybercrime exponentially”, says NordVPN’s Briedis. With generative AI allowing for “vibe coding” – the ability to create programs by simply specifying what you want to create – even the least technically savvy hacker “can type something into ChatGPT and create a simple virus or malware in seconds”.

While many of the larger AI models are desperately trying to build in safeguards to prevent this, they may be too late – “for a few thousand pounds you can get access to your own bespoke AI system that won’t have any of these restrictions”, says Briedis.

As AI becomes ever more sophisticated, its use could expand beyond simply making it easier for hackers to write malicious code. AI could create “agentic” programs that can be sent out to wreak havoc on their own, without the need for constant human direction. Tom Kynge, portfolio manager at Sarasin & Partners, says that even before the Chinese attack, tech start-up Anthropic had done “some really interesting testing on this front, with results showing that AI systems can demonstrate behaviours such as deception, creative problem-solving and manipulation”.

AI-powered social engineering can make things worse

AI can also help hackers carry out what’s known as “social engineering”, where hackers persuade people to voluntarily hand over important security details by impersonating friends, family, colleagues or customers. This matters because, as security companies have become better at bolstering defences against viruses and security breaches, “cybercriminals are increasingly focusing on social engineering”, says Rupert Small, founder and CEO of Egregious, an analysis platform that aims to protect the internet from AI deception. He notes that in some cases, the latest models can “make us believe whatever they want us to… that completely transcends what any other human can do, including your own close family”.

Silver-tongued chatbots and deep-fake videos represent the cutting edge of social engineering. But more mundane AI tools can also pose a threat. Hill Dickinson’s Kate Steele says hackers are already using AI “to send out random emails to a large number of people at a much larger scale than they were previously able to”. What’s more, generative AI is ensuring that, “while the emails from fraudsters used to be easy to spot, as the grammar or spelling wouldn’t be quite right, they are now much more convincing”.

On a more positive note, there is evidence that AI can be used to defend us against security threats as well as create them. “There are many start-ups, many of them created in the UK, which are using AI to detect scams created by social engineering and phishing,” says Small. All the evidence so far is that AI “can be very good at detecting such scams at scale”. Those using AI for defensive purposes may be “a few steps behind” those using it for criminal purposes. However, “the defensive tools definitely exist, it’s just a question of getting them adopted”.

Cat McDonald, a partner at venture-capital firm AlbionVC, takes a similar view. Using AI to detect fraud can lead to false positives, yet AI can also “help find patterns that wouldn’t be visible to the human eye, allowing you to defend yourself far better and quicker than you would be able to do otherwise”. NordVPN’s Briedis notes that his company is already using its own machine-learning algorithms to combat phishing and scam sites. In the future, cybersecurity “is going to be increasingly AI versus AI”, says Briedis.

Threat from quantum computing

AI isn’t the only technology “shaping the next cyber battlefield”, says Citation Cyber’s Javid. Quantum computing is also seen as a threat. The exponentially faster computing speeds it promises mean it will become possible to break encryption systems that normally would take thousands of years to crack using today’s technology, rendering them “irrelevant”, says Tom Peirson-Webber, VP of engineering at Harbr Data. This future might be less distant than people think. The UK’s National Cyber Security Centre suggests that companies “should plan on being quantum-ready sometime between 2030 and 2035”.

IBM has predicted that by 2029, “we’re going to start getting useful outputs from quantum machines that are beyond the reach of classical machines”, notes WisdomTree’s Gannatti. Certainly, “there’s been a lot of talk in both the encryption and cryptocurrency communities about how to deal with this emerging threat, with several start-ups working on how to make encryption quantum-proof”. In a sign that the threat is being taken seriously at the highest levels, the National Institute of Standards and Technology in the US has published papers on how quantum-safe encryption standards could work.

However, even if quantum-proof encryption methods are developed in time, they will still need to be rolled out. While Peirson-Webber likens the problem to the millennium bug, where many people worried about the impact of the date change on computer systems, only for the transition to go relatively smoothly, this is not as reassuring as it might sound. After all, the millennium bug was only overcome “because people started planning for it in 1990, rather than leaving everything to the last minute”, a mistake he worries that some companies may be making. Another risk comes from “people stealing encrypted data today, in the hope that quantum will enable them to decrypt it in a few years’ time”.

Big winners in the growing demand for cybersecurity

So which type of companies will benefit the most from the boom in cybersecurity? AlbionVC’s McDonald thinks the industry is dominated by a “few, very large platforms offering a broad suite of services”. These platforms “have strong brands, established trust and are liked by the security teams of large organisations, who are completely overwhelmed by the large number of solutions out there and find that having a one-stop shop can be very helpful”.

However, she also notes that the recent wave of both security breaches and outages have shown the downsides of having too much consolidation “and made enterprises a little more cautious about having all of their eggs in one basket”. She also notes that many of the large platforms “have reached the stage where they are not able to innovate quickly enough”. This is creating opportunities for “a lot of very exciting early-stage cybersecurity companies, including many coming out of academia, that are looking for solutions that can help defend against new attacks”.

Similarly, VettaFi’s Belorde thinks the recent AWS outage “is a good reminder that there is rarely such thing as 100% reliability”. Companies need to “carefully assess their remedial plans”. In the case of security services, that means having multiple providers, while with regard to storing their data, it makes sense to ensure that cloud storage isn’t the only option used, with the most confidential data stored on properly secured physical servers. In short, the “growing need for more innovative cybersecurity solutions” will benefit an “entire ecosystem of companies”.

How to invest in the cybersecurity sector

The easiest way to invest in companies benefiting from the boom in the cybersecurity sector is through an exchange-traded fund (ETF) tracking a broad portfolio of cybersecurity firms, such as the WisdomTree Cybersecurity Ucits ETF (LSE: WCBR). WidsomTree has built a portfolio of 25 firms by asking experts who have worked at a range of organisations, including the US National Security Agency, to find companies that will benefit from what it sees as eight key themes, ranging from cloud security to cybersecurity education. The largest holding is Crowdstrike, which accounts for 7% of the ETF, with the top ten accounting for half the fund. It has a total expense ratio (TER) of 0.45%.

The third-largest company in WisdomTree’s portfolio is Akamai Technologies (Nasdaq: AKAM). Although its core business used to be providing a secure connection between the user and an internet site, it has recently shifted towards providing services for cloud computing, including cybersecurity. Unlike many companies in the sector, Akamai is not only profitable but also trades at a relatively modest valuation of less than 13 times expected 2026 earnings. Nonetheless, it has a consistent record of solid growth of around 6%-7% a year, with revenues rising 40% between 2019 and 2024.

Another major holding in WisdomTree’s portfolio is Qualys (Nasdaq: QLYS). Qualys provides a comprehensive set of cybersecurity services over a cloud-computing platform. It has a strong record of growth, nearly doubling sales between 2019 and 2024 while increasing its earnings per share over the same period. It boasts strong operating margins and a return on capital employed of more than 30%, which makes the fact that it trades at 21 times expected 2026 earnings seem more than reasonable.

One cybersecurity company that Tom Kynge, portfolio manager at Sarasin & Partners, deems one of the “winners” when it comes to firewalls (a barrier designed to prevent unauthorised people gaining access to a network) is Fortinet (Nasdaq: FTNT). Rather than just providing a single service, it offers a platform that provides a wide range of services, from secure networking to AI-driven security operations. It has nearly tripled sales since 2019, with earnings per shares increasing more than sixfold. That justifies a 2026 price/earnings (p/e) ratio of 28.

Another cybersecurity firm Kynge likes, and a major holding of HANetf’s Future of Defence Ucits ETF (Nato) – VettaFi’s Axel Belorde is also involved with this ETF – is Palo Alto Networks (Nasdaq: PANW). Its divisions include Network Security, Cloud Security and Security Operations. It also has a Threat Intelligence and Advisory Service. Even though the stock trades on a 2026 p/e of 47, revenue has more than doubled since 2021, and the group is expected to keep expanding strongly.

One smaller company that should also benefit from increasing corporate awareness of cybercrime in fraud is PCI-PAL (LSE: PCIP). PCI-PAL specialises in ensuring that a firm’s payment systems are secure, so they can take payments over the phone or online without risk of fraud. Brendan Gulston of the Gresham House UK Multi Cap Income Fund thinks that PCI-PAL is “a great example of a company that, while not seeking to provide cybersecurity directly, has developed a product that is in demand because of companies’ worries about fraud”. PCI-PAL is a riskier investment as it has only recently started to become profitable, but it has seen revenue grow fivefold since 2020.

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The strategy employed by Temple Bar is known as value investing. This is the process of buying a company’s stock for less than its true worth, or intrinsic value. By buying at a discount, this strategy builds in a “margin of safety”: while in the short term an undervalued company’s share price might fall further, in the long run the built-in value should ultimately be recognised by other investors, prompting the share price to rise to reflect the stock’s intrinsic value. There is much empirical evidence to show that value strategies have outperformed stock markets over the longer term.

Of course, some companies are cheap for a good reason, but we believe investments in good-quality yet undervalued companies with strong cash flows and robust balance sheets offer the best potential for attractive long-term investment returns.

Three British stocks worth adding to your portfolio

Although Aberdeen Group (LSE: ABDN) has been known as an asset manager for many years, the company has in fact managed to diversify and now operates three different businesses: Investments asset management; Adviser, a business-to-business (B2B) division; and interactive investor (ii), a trading platform for consumers. Aberdeen’s B2B business is the UK’s second-largest platform offering advice, measured by assets under management; and ii is the UK’s second-largest direct-to-consumer investment platform.

The group appointed a new CEO in 2024 to help make the firm more profitable. We estimate that a restructured Investments business within Aberdeen could be worth an additional £1.5 billion, and therefore see a potential restructuring as a free call option embedded in today’s valuation. There are also financial assets worth £2.1 billion on the balance sheet. Combining our estimated intrinsic value of the three businesses with these financial assets, we deem the shares significantly undervalued.

Smith & Nephew (LSE: SN) is a medical-devices business. It has struggled for some time, losing market share in its key orthopaedics business and suffering from poor levels of productivity. There is now a 12-point plan in place to drive financial improvement. If successful, it could lead to higher sales growth, productivity improvements, expanding margins, and higher cash flow and shareholder returns. In the last 18 months, there have been clear signs that the turnaround is working, as the company has delivered annual sales growth of more than 5% and an expansion in margins. We believe that Smith & Nephew is a high-quality business with strong market positions in relatively stable but growing markets, and we expect meaningful growth in profits in the medium term.

Johnson Matthey (LSE: JMAT) is a speciality chemicals business. JMAT has historically delivered a stable level of sales and underlying operating profit. In recent years this consistency has been impeded by investments in hydrogen. Concerns around hydrogen, a decline in prices of platinum-group metals and the transition to electric vehicles have led to a derating in the stock. Management have since recognised the risk of pursuing growth in unproven technologies and have shifted their focus toward maximising cash flows and shareholders’ returns.

At the time of its results in May, JMAT announced the sale of its Catalyst Technologies division for £1.6 billion and an intention to return 90% of the proceeds to shareholders. This division accounts for just 25% of the company’s profits and yet the sale’s proceeds made up two-thirds of its market value at the time of the announcement. The shares responded favourably on this news. We believe that the shares remain significantly undervalued.

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The British banking sector is in rude health. Perhaps the most symbolic moment this year, in the late spring, was the return of NatWest to full private-sector ownership. The government, which at one stage owned 84% of the troubled lender, sold a final tranche of shares. However, while NatWest’s shares have continued to do well, it isn’t the most interesting UK bank on the stock market at present. I think you should consider a punt on its rival, Barclays (LSE: BARC), instead.

Despite being one of the few UK banks that wasn’t directly bailed out by the government in 2008, Barclays has faced criticism for the poor performance of its investment-banking division. In recent years there has even been pressure from activist investors to sell, spin out, or otherwise separate the investment-banking side from the retail-banking business. Nevertheless, CEO C.S. Venkatakrishnan (Venkat) has stuck with a hybrid strategy of keeping the investment bank while trying to build up the retail-banking and wealth-management arms.

Soaring profits for Barclays

So far, this strategy appears to be working well, with Barclays’ revenues and profits continuing to increase. Its stated profits are now 125% higher than they were in 2019, and even after adjustments they are still up by two-thirds. Dividends have more than doubled. True, there are some clouds on the horizon, in terms of ongoing litigation over the departure of disgraced boss Jes Staley, exposure to private-credit loan portfolios and possible banking taxes in the upcoming Budget. However, experts believe that the first is a relatively minor problem, while Barclays is well-placed compared with its rivals.

One big reason to be bullish on Barclays is its valuation. The stock trades at less than eight times estimated 2026 earnings; at a discount of more than a quarter to the value of its net assets; and at a smaller discount to its tangible book value. This makes it cheap, both in absolute terms and relative to its rivals, with NatWest trading at a 2026 price/earnings (p/e) ratio of 8.5, while Lloyds and HSBC both sell for 2026 p/es of 9.5. All three of these banks are priced at significant premia to net assets. The major US investment banks are valued even more highly.

Barclays’ improving fortunes have certainly caught the imagination of investors: the share price has been on a roll. It has risen by nearly a third over the last six months, making it one of the best performers in the FTSE 100 during this period. It has continued to beat the blue-chip index over the past month and three months, and is also trading above both its 50 and 200-day moving averages. As a result, I would suggest going long at the current price of 405p at £9 per 1p per share. In that case, I would put the stop-loss at 300p, which gives you a total downside of £945.

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In today’s environment of elevated uncertainty and short-term noise, the Nedgroup Investments Contrarian Value Equity Fund offers a clear alternative for long-term investors. Our philosophy is rooted in high conviction and patience. We are not chasing controversy or buying what is merely cheap. We are identifying durable businesses with the capacity to compound earnings over time. Through a rigorous bottom-up approach, we build a portfolio of between 30 and 50 companies from around the world with resilient fundamentals: defensible competitive positions, clear growth paths, trustworthy management teams and robust balance sheets.

Investment returns in excess of the benchmark index, in our view, are earned through stock selection, thoughtful position sizing and valuation discipline, both at entry and exit. We assess long-term intrinsic value across a range of outcomes, with particular emphasis on downside risk, and build positions incrementally. This long-term, unemotional approach allows us to build conviction in contrarian times when others might retreat. We look for misunderstood firms where quality is mispriced and long-term earnings power is underappreciated. Three recent additions to the portfolio reflect this mindset.

Three stocks to watch

Amrize (NYSE: AMRZ) is a building-materials company newly spun-off from Holcin, and is focused on North America, where secular tailwinds (such as investment in infrastructure, the undersupply of housing and onshoring) are underpinning long-term demand. With more than 1,000 sites and deep mineral reserves, it benefits from scale, vertical integration and proximity to key markets.

We’ve known this management team throughout our long-term investment in Holcim, and believe that its disciplined capital allocation and operating efficiency will allow Amrize to boost earnings over the long term by expanding margins and making strategic acquisitions. As a standalone entity, Amrize remains underappreciated, creating a rerating opportunity as the market begins to recognise its true value.

Hoshizaki (Tokyo: 6465) is a global leader in commercial refrigeration and ice-making equipment, serving hotel chains, restaurants, supermarkets, and convenience stores. While it is domiciled in Japan, its reach is global. The company’s strong brand, reliable products and entrenched relationships with distributors create a durable competitive advantage in a fragmented market. Given steady demand for replacement products and long-term growth in the sector, Hoshizaki offers resilient profits. Its conservative balance sheet and engineering-led culture support margin improvement through automation and global sourcing.

Becton Dickinson (NYSE: BDX) is a “picks-and-shovels” business for healthcare: it provides essential products such as syringes, catheters, and laboratory instruments to hospitals, laboratories and research centres. These categories carry high regulatory and trust barriers, and Becton Dickinson is a global leader in many of them. Its recurring revenue base is less sensitive to economic cycles and more aligned with long-term demographic and healthcare trends. Disciplined mergers and acquisitions, a focus on patients’ safety and expansion into emerging markets support consistent earnings growth. Becton’s ability to innovate while maintaining operational discipline makes it a durable compounder in our portfolio.

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During the pandemic, profits across the global luxury sector jumped as consumers, unable to spend their disposable income elsewhere, splashed out on high-end purchases. This pulled forward a lot of demand, and over the following years, sales flagged. The S&P Global Luxury index of the 80 largest publicly traded companies engaged in the production or distribution of luxury goods jumped 65% between the beginning of 2020 and the end of 2022. From January 2023 to today, it’s added just 2% excluding dividends.

LVMH (Paris: MC), the world’s largest luxury-goods group, managed to buck the trend until mid-2023, when industry headwinds finally started to affect the group. Revenue fell 2% in 2024 and net income slumped 17%. The decline continued in the first half of 2025. Revenue declined 4% in the first six months of the year and net income fell 22%. However, there are signs that the worst of the slump is coming to an end – and the world’s largest luxury group is ideally placed to ride the recovery.

The tide turns for LVMH

For the third quarter, LVMH reported group sales of €18.3 billion, down 4% year-on-year, but 0.6% ahead of analysts’ consensus. Growth returned in the US market and Asia ex-Japan. Japanese sales declined 13%, but were stronger than the previous decline of 28%. European sales fell 2%, faster than the 1% recorded in the second quarter. One of the most interesting spots was China. Mainland China returned to positive growth in the quarter with management flagging the success of The Louis, a ship-shaped Louis Vuitton store, cafe and exhibition in Shanghai. Local Chinese consumption grew by mid-to high-single digits; Chinese tourists’ spending improved, but remained down by double digits.

LVMH’s results confirm that some level of stability has returned to the market and, for the time being at least, consumers’ spending on luxury goods has stabilised. In a recent note on the luxury sector, analysts at JPMorgan concluded that while “trends remain challenging” across Asia, North America is picking up due to “healthy spending among Americans across income groups, supported by strong equity markets and wealth creation”. It’s the high-end American consumer who is set to pick up the slack for the rest of the world.

According to Berenberg research, the “top-quintile” earners in the US are expected to see the largest benefit from Donald Trump’s recent swathe of tax cuts, with a projected 3.4% increase in after-tax income for the richest. The top 0.1% will see an average federal tax saving of $286,440. The spending power of the top 1% will also benefit from the recent equity rally and lower interest rates. High-net-worth households own the majority of US assets, with the top 1% holding 28% of the total.

This trend was apparent in the results of LVMH’s peer Hermès (Paris: RMS). The firm is more focused on the top segment of the market than LVMH, which has a more diverse portfolio, but its results showed where the strongest demand is emerging. In the third quarter, sales grew 10% excluding headwinds from foreign exchange, with US sales up 14% and Asian sales 6%. Sales of its bags and watches rose 13% and 9%, respectively; perfume sales fell 7%.

LVMH’s fashion and leather-goods arm, the group’s largest, which includes brands such as Christian Dior and Givenchy, and makes up around half of sales, was the worst-performing segment in the first nine months of 2025. But the group’s watches and jewellery arm, which includes Tiffany, grew 2% organically year on year.

LVMH’s strength lies in its diversification globally and across product lines. The group’s management structure also aligns with the quality-first approach to luxury retailing. Bernard Arnault took over LVMH in 1989 and he remains the largest shareholder. He’s inserted his family into key management roles and continues to build his stake on weakness. Under Arnault’s stewardship, LVMH has prioritised investment in brands over short-term margin protection. Some selective deals have also been explored. The latest rumours are around a sale of its 50% stake in Fenty Beauty, which it co-owns with Grammy Award winner Rihanna. Fenty Beauty, which generated around $450 million of net sales in 2024, could be valued at between $1 billion and $2 billion.

Should you add some luxury to your portfolio?

The market is also waiting to see if LVMH makes a bid for Armani. Giorgio Armani’s will named LVMH as a preferred buyer for a minority stake in Armani (along with EssilorLuxottica and L’Oréal) and the deal would make a good fit for the luxury giant. Berenberg has estimated the business could be worth as much as €5 billion-€7 billion, easily affordable for LVMH, and it would boost the group’s exposure to the affordable-luxury market. There could also be scope for the group to improve Armani’s profitability and margins through its economies of scale and its existing distribution networks.

Analysts have thrown their weight behind LVMH in recent months. UBS has upgraded the stock to “buy” and said “we believe that the self-help measures introduced… combined with strict cost management and slowing space expansion, will drive a stabilisation in margins in 2025 and a return of positive… momentum” in earnings per share. Berenberg too has cited self-help measures and stability in key markets as reasons for optimism. As headwinds become tailwinds, it could be time to add some luxury to your portfolio.

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Federated Hermes Sustainable Global Equity invests across a diverse mix of growth, quality, and value companies, and across developed and emerging markets. It seeks out firms whose products, operations and activities contribute towards a more sustainable future. These companies are well placed to benefit from structural sustainability trends that are reshaping industries.

One such trend is electrification, a powerful yet often overlooked investment theme. As industries shift from fossil fuels to electricity, demand is accelerating, unlocking exciting investment opportunities in areas ranging from transport and heating to mining and steelmaking. Importantly, electrification represents one of the easiest and most cost-effective ways to enhance energy efficiency and reduce emissions – especially when powered by renewables.

Thanks to decades of innovation, the cost of core components such as batteries and power electronics has fallen by 99% since 1990. This has transformed the economics of electrification and accelerated adoption. This is just the beginning. Continued innovation will drive stronger returns and broader uptake, and the most compelling opportunities lie with companies enabling the transition: delivering the means to power an electrified future.

Three stocks to watch in electrification

Taiwan Semiconductor Manufacturing Company (Taipei: 2330) supplies 90% of advanced chips globally and is a critical partner to technology giants such as Apple and Nvidia. Its cutting-edge innovations deliver the enhanced performance and reduced power consumption vital to compact electrified systems.

The firm’s technological superiority and scale position it to benefit from rising demand across sectors. Exposure to electrification, supported by its diversified customer base and sustainability-driven innovation, boosts TSMC’s growth prospects. The Industrial Technology Research Institute estimates that by 2030, each TSMC chip will save the world nearly seven times the energy needed to produce it.

Trane Technologies (NYSE: TT) is a global leader in heating, ventilation and air-conditioning systems, with a strong focus on electrifying building infrastructure. Trane’s systems cut energy costs, improve comfort and help meet emissions regulations, significantly reducing energy use in existing buildings. Heating and cooling comprise 40% of a building’s energy consumption, making Trane’s impact especially significant. Its thermal management systems are between three and five times more efficient than conventional solutions, making up for the higher upfront cost of their units. The company’s service and controls business provides recurring revenue and strengthens relationships with customers.

Schneider Electric (Paris: SU) is a global leader in the digital transformation of energy management and automation. Its platform provides an integrated, hardware, software and services solution enabling electrification across buildings, data centres, industry and infrastructure, cutting emissions and energy costs.

Schneider worked on JPMorgan’s new headquarters in New York, Manhattan’s largest all-electric skyscraper, which is expected to achieve net-zero operational emissions powered by renewables. The firm’s effective strategy and positioning in a market with high barriers to entry has fuelled strong returns for shareholders and consistent dividend growth.

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Galliford Try Holdings (LSE: GFRD) is a British construction company worth £534 million, with a diversified set of customers. In Scotland, it operates as Morrison Construction. Galliford has changed markedly since 2020, when it sold its housing businesses to Bovis for £1 billion and then invested in growth and the acquisition of several infrastructure businesses.

These include Lintott, MCS Control Systems, Ham Baker Engineering (a company active in the water industry) and AVRS (which operates in the energy and nuclear sectors). Galliford serves a wide range of markets, including defence, education, facilities management, health and infrastructure; 91% of clients stem from the public and regulated sectors.

Infrastructure is a priority for the government. Galliford intends to increase revenue to more than £2.2 billion by 2030, from £1.77 billion in 2024, and achieve divisional margins of at least 4% (up from 2.5%).

Galliford Try taps into a wide array of sectors

Examples of recent projects in nine different sectors are: a commercial office development in Reading (the value of the contract was £84 million); East Lothian Community Hospital (£72 million); Catterick Garrison (£60 million); Carlisle Southern Link Road (£140 million); Brent Cross affordable homes (£75.8 million); Barony schools campus, East Ayrshire (£59 million); HM Prison Rye Hill (£95 million); fire safety improvements at HMP’s Wakefield and Moorland (£100.9 million); and Keadby Pumping Station in the East Midlands (£35 million).

Several procurement systems feed the pipeline of orders. Examples include the Cabinet Office’s Crown Commercial Service (CCS), which serves the Ministry of Defence and the Ministry of Justice; the Department for Education’s school-building framework (which covers the lion’s share of school building in England); and the NHS’s ProCure 23 Framework (Galliford is one of six companies serving the NHS).

Galliford is also involved in procurement frameworks for all 13 of the UK’s major water companies and Hub Scotland (Galliford is in four of five regional hubs for Scottish public buildings, from stations to schools).

And the company has this year won a place on the National Grid’s (NG) five-year major works framework for upgrading the grid. The anticipated value of the contract is £9 billion over five years. The work is a part of NG’s overall £59 billion upgrade).

Galliford has three divisions: building, infrastructure and specialised services.

Building accounts for 51.5% of revenue. The division designs, constructs and refurbishes assets in sectors where it has expertise, such as education, health, defence, justice and commercial.

Infrastructure provides 48.1% of sales and consists of activity in the highways and environment subsectors (notably water and sewage, where Galliford is one of the largest contractors). Specialist services includes facilities management, fire stopping and cladding, digital infrastructure, and investments (such as public-private partnerships, or PPPs). Specialised services revenues are mainly reported within building or infrastructure, with the PPP component providing 0.43% of total revenue.

Galliford’s results for the year to 30 June 2025 showed revenue of £1.875 billion, up 6.3%. The order book totalled £4.1 billion (equal to more than two years’ turnover) and includes 92% of projected sales for the current year and 75% of next year’s. The largest sectors in the order book include work in the environment, highways, education and defence subsectors.

In August 2025 Galliford was nominated one of four finalists in the Best Place to Work – Large Firm category for the Construction News Workforce Awards. Galliford also has the London Stock Exchange Green Economy Mark for activities benefiting the environment.

Galliford Try's income and profitability

Galliford’s results for the year to 30 June 2025 show sales of £1.875 billion, up 6.3%, with adjusted pre-tax profit rising 28.6% to £45 million. Earnings per share (EPS) rose 23.4% to 33.7p, and the dividend per share climbed 22.6% to 19p; the payout has more than trebled over the past four years. Net cash totalled £237.6 million.

The divisional operating margin was raised to 3% from 2.5% in 2024, and is therefore well on the way to the 2030 target of 4%. The shares rose 11% after the 2025 results. CEO Bill Hocking said that all the businesses have performed well since 30 June, and trading has been slightly ahead of expectations for 2025-2026. A buyback of £10 million has been announced for 2025-2026, following one for the same amount in 2024. Galliford has a record of profitable growth and intends to deliver its 2030 strategy of raising revenue to more than £2.2 billion by supplementing growth in its core markets of building, highways and environment with growth in adjacent markets. These include the private-rental sector, green retrofit, and the affordable-homes market.

Galliford Try has a recent share price of 539p, a forward price/ earnings (p/e) ratio of 15.4 and a useful forward dividend yield of 3.5%. Analysts’ one-year price target is 598p.

Hocking holds 1.95 million shares worth £10.5 million, so he has a substantial personal stake in his company’s success. If the group succeeds in hitting its 2030 targets, revenue will be doubled from 2021 and up 24% from 2024, reaching in excess of £2.2 billion. And the divisional operating margin, 2% in 2021 and 3% in 2025, will be raised to 4% by 2030. The overall construction sector is in a downcycle, so now is a good time to invest in Galliford Try with its reasonable valuation, targeted revenue and margin growth, and 3.53% dividend yield.

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In an era where digital communication dominates, the enduring appeal of a handwritten card might seem quaint. Yet, for Card Factory (LSE: CARD), the UK’s leading specialist retailer of greeting cards, gifts and celebration essentials, this personal touch is the cornerstone of a surprisingly resilient business. Despite the rise of online cards, enough customers still value the sentiment of a physical card to keep Card Factory’s model relevant. Combine this with low-priced products, a repeatable purchase cycle and a remarkable recovery from the pandemic, and you have a company that’s not only surviving but flourishing.

Despite these qualities, the shares look good value too; trading on a price-earnings (p/e) ratio of less than seven – a standout bargain even among the UK’s undervalued small-cap stocks. For investors, this could be a rare chance to buy into a business with solid fundamentals and decent growth prospects at a deeply discounted price.

Card Factory is a high-street mainstay

Founded in 1997 by a Yorkshire entrepreneur as a market stall, Card Factory has grown into a high-street mainstay, with more than 1,000 stores across the UK and Ireland. It also operates an online platform, which competes with Moonpig and Funky Pigeon. Its core offering of affordable greeting cards, balloons and party supplies taps into a cultural habit that shows no sign of fading. While online platforms such as Moonpig have gained traction, particularly during the Covid lockdowns, Card Factory’s success hinges on the fact that many consumers still prefer choosing and sending a physical card. A handwritten note for a birthday, anniversary or condolence carries an emotional weight that an online printed card does not.

This preference is reflected in the numbers. The UK greeting-card market, while slow-growing, remains stable. Card Factory’s value proposition – offering cards starting at under £1 and gifts priced to suit tight budgets – ensures it captures a significant share of the market. Its vertically integrated model, with in-house design, printing and warehousing, keeps costs low and margins healthy.

Card Factory’s business model is uniquely suited to weather economic storms. Its low-price goods are affordable even when household budgets are squeezed. The repeatable nature of its products, tied to recurring occasions such as birthdays, Mother’s Day and Christmas, ensures steady demand regardless of the economic climate. Unlike discretionary retailers selling big-ticket items, Card Factory benefits from consumers’ reluctance to skip small, sentimental purchases, even during downturns. This resilience was evident in the firm’s performance during recent economic challenges.

While rising energy costs, freight inflation and National Living Wage increases have pressured margins, Card Factory has offset these through targeted price increases and tight cost control.

Card Factory's remarkable dividends

The only time Card Factory genuinely faltered was during the Covid pandemic, when high-street footfall plummeted. The company took a brutal hit. Dividends have been a hallmark of Card Factory’s shareholder-friendly policy since its 2014 flotation, but they were suspended during the pandemic.

The recovery coincided with a return to normality. By 2023, sales had surpassed pre-pandemic levels. Store transaction volumes, while still below pre-pandemic levels, have rebounded strongly, driven by high-street footfall and click-and-collect services. Online sales, although slightly down post-reopening, remain significantly ahead of pre-pandemic figures, reflecting a lasting shift in consumers’ behaviour. Most tellingly, Card Factory reinstated its dividend in 2024, declaring an interim payout for the first time in five years, a clear signal of confidence in its cash flow and long-term outlook.

Despite this turnaround, Card Factory’s shares remain extraordinarily cheap for a business with stable revenues and reinstated dividends. Even in a UK market brimming with undervalued small-cap stocks this valuation stands out and, with a high dividend pay-out, investors earn a return even while waiting for the market to wake up to the potential.

Card Factory’s growth prospects add to its appeal. The firm is expanding, with new openings planned, and it is enhancing its online platform. A recent $25 million acquisition of Garven, a US-based card retailer, signals ambition to tap the potentially lucrative US market, although investors are watching closely for its financial impact. Partnerships, such as with Aldi, and a focus on higher-ticket items such as balloons and party supplies, are expected to drive revenue growth of 5%-7% annually over the next few years.

No investment is without risks. Card Factory’s reliance on physical stores makes it vulnerable to shifts in consumers’ behaviour.

Inflationary pressures, especially in freight and labour, could continue to squeeze margins, and the company’s debt pile, while manageable, requires careful monitoring. Yet these risks seem more than priced into the current valuation. With a strong cash flow and a diversified revenue stream, Card Factory is well-positioned to navigate challenges. Its ability to outperform competitors in key trading periods, such as Valentine’s Day, underscores its market strength.

Card Factory may not be glamorous, but its resilience makes it a compelling opportunity. Its recovery from the pandemic has been robust, with revenues above pre-pandemic levels and dividends back on the table. Trading at a historically low valuation, with decent forecast growth, the shares are a bargain in a market full of cheap stocks.

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The Ashoka WhiteOak Emerging Markets Trust engages in bottom-up stockpicking to find great businesses at attractive valuations across emerging markets. The trust runs a portfolio that is generally balanced relative to the benchmark to reduce macro risks; stock selection drives performance.

Stocks are selected by a dedicated team of investment professionals and go through an internally developed framework assessing companies’ environmental, social and governance (ESG). The trust focuses on maintaining a well-diversified portfolio rather than making big individual bets on companies, sectors or countries.

Samsung Electronics (Seoul: 005930) is a South Korean leader in technology with strong positions in semiconductors, smartphones, displays and other electronic devices. In the computer-memory market, Samsung remains a major player in both the DRAM and NAND subsectors, with scale and cost advantages built over decades. The surge in demand for AI servers is driving higher memory content, providing structural growth opportunities.

Samsung’s foundry business is expanding through areas such as 3-nanometer process node (3nm): an advanced stage of semiconductor manufacturing where transistors are built in minute sizes. The group is therefore now in a position to capture market share beyond memory.

In smartphones, the company holds a leading position with its Galaxy series and is the pioneer in foldable devices, while its OLED (organic light-emitting diode) display business continues to benefit from increasing penetration into mobile and IT products. Backed by diversified revenue streams, consistent investment in research and development (R&D), and exposure to long-term themes such as AI, digitalisation and electrification, Samsung Electronics is well placed to compound value over the long term.

Growth stocks and the AI boom

Delta Electronics (Taipei: 2308) is the leading switching power supply company globally. It serves a wide range of markets such as telecom base stations, console games, PCs and servers. The industry is characterised by high barriers to entry with know-how built up over decades of experience. Recent growth has been driven by AI servers, which require a far higher power supply than conventional ones. New generations of AI servers have even higher power requirements. Beyond AI, Delta is also present in areas such as factory automation and supplying power trains for electric vehicles, demonstrating management’s ability to identify new opportunities.

Alibaba (NYSE: BABA) is a Chinese company specialising in e-commerce, cloud computing and digital media with a diverse business portfolio both in China and globally. It is the market leader in domestic e-commerce, payments and cloud infrastructure. Alibaba has an enduring competitive advantage thanks to its integrated ecosystem and substantial economies of scale, conferring pricing power and facilitating attractive incremental returns on capital.

In e-commerce, opportunities include rising e-commerce penetration in China and greater opportunities to monetise advertising. Surging demand for AI in China has accelerated cloud migration, bolstering Alibaba’s position as the go-to cloud infrastructure provider. Capable management also makes Alibaba an appealing long-term holding.

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Digital currencies (cryptocurrencies) have moved from the outer fringes of investing into the mainstream in recent years. While it’s been a roller-coaster ride for investors, crypto is here to stay. Governments and regulators progressed from ignoring it to fighting it; now they are trying to jump on the bandwagon by allowing investors access through exchange-traded funds (ETFs). However, while bitcoin might not be in a bubble, some of the companies involved in it are.

Chief among these is the group of companies known as bitcoin treasury companies. These firms’ business models involve buying a load of bitcoins and holding them on their balance sheets in the hope that investors will be willing to value their shares at a premium to the value of the bitcoin. They would then promise to take advantage of this premium to issue more shares, which could be used to buy more bitcoin, in the hope that those who invested would see the bitcoin per share holdings increase.

Trouble ahead for bitcoin treasury companies

Incredibly, this model worked for a time, with some companies trading at twice (sometimes more) the value of their net crypto assets. However, because mainstream financial institutions now offer products such as ETFs, it has become much simpler for even cautious investors to buy crypto, so bitcoin treasury companies have become much less attractive. As a result, the valuations they can command have started to dwindle. Meanwhile, some bitcoin treasury companies have struggled to issue more shares, leaving their investors with a large amount of very expensive bitcoin.

One such company is Strategy (Nasdaq: MSTR). While Strategy has its own business software and intelligence business, most analysts believe that virtually all its value resides in its 640,000 bitcoin, the largest corporate holding in the world. The problem is that while this pile is worth around $73 billion at current prices, Strategy also has debts of $11 billion. Overall, this means that it trades at a 40% premium to the value of its bitcoin, using the industry’s preferred metric. In other words, those who invest in the company are paying $1.40 for every $1 worth of bitcoin that Strategy holds, a pretty poor deal, especially compared with holding bitcoin directly or through an ETF.

Despite the ongoing appreciation of bitcoin, Strategy’s share price is currently trading below both the 50-day and 200-day moving averages, and is significantly down from its peaks earlier this year. I would therefore suggest shorting Strategy at the current price of $305 at £5 per $1. At the same time, I suggest that you go long on bitcoin at the current price of $114,639 at £1.50 per $100. This means that as long as the price of bitcoin outperforms Strategy’s share price, you should make money. To limit your losses, I would cover your position in Strategy if its share price rises above $610.

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There’s something interesting happening in the world of fintech that has never been seen before in finance. The likes of Venmo, Klarna (NYSE: KLAR)and Revolut have become so integral to consumers’ day-to-day habits in their largest markets that their names are being used as verbs. In the US, it’s common to “Venmo” shared meals between friends, while in Ireland, where 73% of people have a Revolut account, “I’ll Revolut you” is now what people say if they’re sending money. To “Klarna it” has become slang for buying something you can’t afford.

It’s not great marketing that’s helped these firms capture users’ attention, but ease of use. Revolut has grabbed market share from Ireland’s big banks as their apps are clunky, fees are high, and payments can take days to process. Their response to the threat posed by fintech is telling. Ireland’s incumbent banks are combining to roll out a new instant payments service to compete with Revolut, two years after their previous effort was scrapped. The service will launch early next year and will allow customers to send up to €1,000 per day. Revolut has offered that service for years.

This is playing out all over the world. Fintechs are taking market share from established financial institutions that are tied down with clunky legacy systems and a lack of appetite for reform and risk-taking. Their business models have been built around cutting-edge tech that can be expanded globally without a huge physical presence, enabling them to scale up across whole continents.

Klarna's challenge to Visa

Klarna, which listed on the New York Stock Exchange last month, is the perfect example. The firm’s buy now, pay later (BNPL) product shares similarities with well-established options such as loans and credit cards, but users can open accounts in minutes and manage all payments through a single app, with clearly defined repayment terms. UBS estimates the size of the global BNPL market at around $4.3 trillion, and existing penetration is around 5%-6%. Specific markets have seen more penetration than others, with Germany and Sweden (Klarna’s home market), for example, at 20%, compared with just 4% in the US.

Klarna itself is the 800lb gorilla in the room, with a 45% share of the BNPL market. Global BNPL payment volumes through the platform have risen from $21 billion in 2019 to $96 billion for 2025 as industry volumes have jumped from $27 billion to $217 billion. Klarna’s real opportunity, however, lies in its potential to shake up the well-established payment network operators, Visa and Mastercard. Worldwide, Visa accounts for 37% of all credit cards in circulation; Mastercard for 32%. These providers don’t issue the cards directly – that falls to the issuer, typically a bank. Visa and Mastercard operate the underlying payment network and take a cut of each transaction in compensation.

Klarna works both within and alongside these networks. In the past two years, it has started to push its own alternative, most notably via an agreement with Apple to offer the Klarna card via Apple Pay. This has opened up a whole new market. Klarna built its reputation in the BNPL card-not-present market (online shopping). The combination with Apple Pay is a significant step into the in-store market. It’s convenience that makes the real difference. To add the Klarna card to Apple, all users need to do is sign up via the Klarna app and integrate with Apple. There’s no physical card involved. Users can then spend as they want, track spending in the app and integrate with their bank account of choice to organise payments.

Including the in-store market, UBS believes Klarna’s total addressable market is around $10 trillion. If the firm can gain 10% of that, it would mean a 10 times increase in current payment volume through the Klarna platform. And even if the group managed to grow volumes to $1 trillion, that would still pale in comparison with the near $7 trillion flying around Visa’s network annually.

Klarna's shares look cheap

Klarna has three revenue streams. The biggest is BNPL, accounting for 80% of gross transaction value. It charges 2.45% of each transaction to the merchant for this service. Merchants are generally happy to pay the higher fee (it’s typically around 1% for credit cards) because research has shown that offering BNPL as a payment method leads to more transactions and higher spending per customer. Away from BNPL, 16% of Klarna’s payment volume is consumers paying in full. The fee here is 0.95%. Finally, Klarna’s financing offer (for purchases spread over three to 36 months) currently accounts for 4.7% of transaction volume. Here, it earns 9.52% on average.

Overall, UBS estimates the company earns a blended total take rate of 2.51%. Add in late fees, financing costs, processing and servicing costs, as well as the cost of credit write-offs, and the Swiss bank’s analysts have come up with an overall blended take rate of 0.83%, rising to 1.03% with additional fee income. Klarna is expected to process $125 billion of payments in 2025 (BNPL, in-store and financing), rising to $192 billion by 2027 in UBS’s base case. On this volume, the bank thinks Klarna could generate revenue of $5.6 billion in fiscal 2027, up from an estimated $3.5 billion in 2025. The group is expected to report a loss of $239 million before interest and tax this year (Ebit), but UBS has pencilled in a profit of $611 million by 2027, rising to $1.4 billion by 2029 as the group continues to benefit from increasing transaction volume and economies of scale. Based on these projections, Klarna is trading at a 2027 price-to-earnings (p/e) ratio of 33.3, falling to 16 for 2029. That seems cheap for a company that has the potential to rewire the global payments market and has become such a vital part of users’ financial lives.

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Nothing can stop silver, it seems. Not even the $50-an-ounce mark. The price of $50/oz is the all-time high for silver. It reached that level in 1980, then again in 2011, but it’s never been able to get past it. It’s hard to think of any price in any market that is as psychologically significant a barrier as $50 silver. And yet this week silver sailed through it.

We might even have a supply squeeze on our hands – you get them in the silver markets every now and then. Demand from investors has shot up with the recent price surge, creating a shortage in London (where supply was already tight). Lease rates – the cost of borrowing the metal – have jumped by up to 30% in recent days.

Bid-offer spreads have risen from a typical three US cents to 20 cents. The spread between the London spot price and the Comex future price typically sits at minus 30 cents/oz. Suddenly, it’s $3/oz and silver has gone into backwardation: the spot price is now higher than the price of the future. That happened in 1980 as well, as silver was rocketing. By the way, if you adjust that $50 silver price for inflation, you get a figure around $200/oz for silver. Just in case you wanted an idea of what’s possible.

The backwardation has prompted traders to fly 1,000oz bars from Comex vaults in New York to London. The price gap justifies the transport costs, and remember: silver is bulky compared with gold. It is not cheap to fly.

Why such a shortage of silver? The market has been in deficit for five years, meaning demand has exceeded supply. The shortfall is around 150 million ounces annually, with London’s stock down by a third since 2021. Annual global silver production from mines peaked in 2016 at 900 million ounces. It’s been in the 830-860 tonne range ever since.

A surge in demand for silver

The major factor affecting demand has been solar panels. Until 2021, demand for silver in photovoltaic cells consistently remained below 100 million ounces per annum. Now it’s close to 250 million ounces. With the world electrifying, this appetite is unlikely to subside.

What’s interesting is that demand from exchange-traded funds is still below 2021 levels. In other words, investors are not fully committed yet. There is room for greater investment demand, and that puts further upward pressure on price.

What adds yet more potential rocket fuel to the price is the absurd levels of paper silver – something I have never fully been able to explain, although I am reluctant to cry manipulation as many do. But there are something like 360 paper contracts for every physical contract, and that has the potential to cause a short squeeze if paper contract holders request physical delivery. It happened in 2011 when silver went to $50. It happened in 1980, too.

Remember, silver tends to move later in bull markets and by more. We are seeing that now. A recent poll I ran on X showed that while gold is widely agreed to be in innings six of nine, silver is perhaps not even in innings three. I put that down to excessive bullishness among silver bugs. The market has been rising since 2022. Just quietly. Still, you can’t be too bullish in a bull market. It’s recognising when it’s over – that is the skill.

Chartists point out that the cup-and-handle pattern is regarded as extremely bullish. Silver has traced one out over 50 years. Typically, you would set a target matching the height of the cup: the distance from the bottom of the cup ($4) to the rim: $46. That gives us a target price of $96. Lord knows what price that means the miners would go to.

Don’t get carried away with silver

But remember, this is silver. If it can find a way of letting you down, it will. I’ve covered this market for 20 years. It is characterised by years of bear market, years of waiting, years of nothing but losses, punctuated by occasional spikes of hope. We are enjoying one such spike now.

Everyone’s saying this time it’s different. I don’t doubt that this bull market has legs. But it’s still silver. Don’t get carried away. There are many reasons to own silver. But be clear why you own it – and don’t own it for the wrong reasons.

Silver is not the same as gold. Yes, it was once a monetary metal, although its main purpose was as a medium of exchange, not as a store of wealth – just as gold’s main purpose was more to be a store of wealth rather than a medium of exchange. Central banks, institutions and individuals still use gold as a store of wealth today. They don’t use silver. Yes, some of us have silver coins and bars; there are the ETFs, but silver has nothing like the significance that gold does in this respect. Meanwhile, silver’s role as a medium of exchange is long gone.

Silver remains a beautiful, captivating, magical metal with a plethora of uses. Demand for silver will only increase as we make more mobile phones, computers, batteries, medical devices and, of course, solar panels (the most rapidly growing source of demand). The market, as I say, has been in deficit for five straight years, causing above-ground stock (mainly from recycling) to run low.

With that extraordinary paper-to-physical ratio of 361 contracts for every physical ounce of silver, bubbling under the surface is always the potential for a huge short squeeze as dealers scramble for physical metal to honour paper contracts. This happens occasionally and seems to be happening now. But it is not a permanent state of affairs.

The gold/silver ratio

There is 15 times as much silver in the ground as there is gold, and this historical monetary ratio between the two was always around 15. This has led many to argue that we will return to that ratio at some point. If gold remains around $4,000/oz, then silver would be $266/oz. But that ratio is not coming back, because silver’s role as money is not coming back. Don’t be under any illusions. The only chance of us ever reaching a ratio of 15 is on a spike, such as we saw in 1980, but things will quickly revert. Currently, the ratio lies at 80.

The price action of silver is unlike any other metal. In the 1970s, it meandered around $5/oz, then suddenly exploded to $50 as the Hunt brothers tried to corner the market. It then collapsed and spent the next 25 years meandering around the $5 mark again. Things picked up after 2004. There were huge spikes and dips as it launched to $50/oz once again in 2011. Then it crashed again. It traded in a range between $15 and $30 for another decade, but then, largely riding on the coat-tails of gold’s bull market – roughly since the US froze Russian dollar assets – silver has been creeping up and up and up.

Silver at $50 is a huge line in the sand. Maybe this is a genuine breakout, maybe not. But we are now at $52. There is no resistance overhead. Typical price action would be for us to rally a bit more, pull back to the breakout level, retest, then off to new highs. That’s when we start heading towards those cup-and-handle highs. I don’t think $100 silver is an impossibility. But I shall be lightening up as we rise.

My favourite silver play, my largest silver position and one I have covered before is Sierra Madre Gold and Silver (Canadian Venture Exchange: SM). Some Flying Frisby and MoneyWeek readers got into this one a couple of years ago below 30 cents. It is now sitting majestically at C$1.45. It can go higher. If silver hits $100, this could become a 10-dollar stock.

Where to invest in silver now

This Canadian-listed company, with a market value of C$270 million, has a producing mine in Mexico, La Fortuna, which it acquired from silver mining giant First Majestic (NYSE: AG). First Majestic had put it under care and maintenance during the bear market.

While the quality of the asset was not in doubt, it was deemed too small for a company of First Majestic’s size to bring back into production; hence the partnership with Sierra Madre. Sierra Madre spent several years putting it back into production, meeting most targets ahead of schedule, although its cost per ounce was higher than anticipated at $30/oz.

Full-scale commercial production began in January 2025. Production currently stands around 700,000 ounces per annum. There are also several potential catalysts for the stock. Firstly, production costs will come down from $30/oz to about $21 over the next two years as the group replaces rented equipment with its own, increasing efficiency and turnover.

The company also processes between 300 and 350 tonnes of rock per day. Recent investment in the business means improved equipment, and processing will rise to 750-800 tonnes by the second quarter of next year. Production will double, in other words. The miner is aiming to double that figure again by late 2027. Remember, this company has a habit of reaching its targets, which is unusual in the sector.

The La Fortuna mine is projected to have at least 15 years of life. But the bulk of this stock’s potential comes from exploration. There are many past producing mines on the property (most closed in the early 20th century), which produced more than a million ounces of silver annually. Geologic mapping has identified 60 kilometres of mineralised veins. The group also has multiple historic resource reports, one showing 200 million ounces in the 1990s, which never materialised due to the bear market. There is plenty of metal there, in other words.

“This is why we bought the property,” CEO Alex Langer tells me. It could be “the largest undeveloped silver district in Mexico”. Exploration begins next year. First Majestic had plans for a mill to process 3,000 tonnes of rock per day at one of the properties. So why didn’t it explore the property itself? Because it owns a huge stake in Sierra Madre (38%), so it can sit back and let Sierra Madre do the work.

The goal is to grow what was a development play, now a junior producer, into a mid-tier silver producer. The expansion plans are coming just as silver is rising. It feels like just the right point in the cycle.

If the company produces silver at $30 and the silver price rises from $40 to $50, profits double. If production costs come down to $20 and the silver price rises to $60, they double again. If production itself doubles, profits double again. If the silver price goes to $100 and this firm makes a major discovery and turns itself into a district-scale producer, then this becomes an asymmetric bet.

Flying Frisby and MoneyWeek readers who got into this one at 30 or 50 US cents may be tempted to take some profit. But there is every reason to carry on holding. Ultimately, this miner sinks or swims with the silver price, but even if silver just stays where it is there is still enormous potential for growth.

Dominic Frisby is the author of The Secret History of Gold: Money, Myth, Politics & Power, available at all good bookshops. He writes the investment newsletter The Flying Frisby: theflyingfrisby.com.

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Few companies embody the resilience of British retail quite like Next (LSE: NXT). From a near-collapse in the 1980s to becoming a high-street staple, Next has navigated seismic shifts in consumer behaviour, technology and economic cycles with remarkable agility. Under the stewardship of CEO Simon Wolfson, the company has transformed from a struggling chain into a multi-channel powerhouse, blending physical stores, a pioneering online platform and a logistics network so efficient it’s become a lifeline for other retailers. Its relentless focus on innovation, clear communication with investors and disciplined capital allocation have delivered exceptional returns for shareholders, bucking the trend of declining high-street footfall. Today, the shares of Next aren’t obviously cheap, but its record and growth prospects make it hard to bet against. For investors seeking a business that marries retail heritage with forward-thinking strategy, Next remains a compelling proposition.

In 1988, Next was teetering on the brink, with a share price below 10p and debts mounting. Over-ambition and a failure to focus on core strengths had left the company vulnerable. The turnaround began in the early 1990s under chairman David Wolfson and CEO David Jones. Jones closed unprofitable stores, sold manufacturing facilities and offloaded the Grattan business. A 1993 strategy unified store and catalogue shopping ranges, strengthening the Next brand.

However, a misstep in 1998, of ordering trendy, pricey clothing while understocking basics, dented profits. This underscored the need for disciplined execution. Enter Simon Wolfson in 2001, aged just 33. The son of former chairman David Wolfson, his appointment raised eyebrows. Yet Wolfson’s tenure now spans more than two decades, and he has silenced doubters, delivering one of the most impressive success stories in UK retail.

Wolfson’s golden age as Next's CEO

Since Wolfson took the helm, Next’s share price has soared from around £8 to well over £100, a 12-fold increase. This is just part of the story. Next has also delivered an impressive dividend record, inclusive of occasional large special dividends. An investment in Next at the time of Simon Wolfson’s appointment 24 years ago would have increased in value by almost 30 times (including dividends), far outpacing that of the wider stock market. Wolfson’s leadership blends strategic vision with operational rigour. He prioritised consistency of the brand, cost control and customer satisfaction, ensuring Next’s clothing and homewares remained fashionable, high-quality and fairly priced. His candid, long-term approach to capital allocation has been a hallmark. Unlike peers constrained by legacy commitments, Wolfson views investments through the lens of incremental returns, unencumbered by institutional pressures. This flexibility has allowed Next to pivot swiftly, whether embracing e-commerce or weathering economic storms.

Next’s success stems from relentless investment in technology and improvement in processes, often yielding unexpected benefits. A prime example is Next’s use of individual barcodes for each item, initially introduced to streamline the returns process. Customers could return items quickly, boosting satisfaction and lowering staffing requirements and the wage bill. An unintended consequence was a sharp reduction in theft.

Thieves could no longer claim refunds on stolen goods, as barcodes tied each item to a specific purchase. This enhanced profitability without additional cost.

This knack for innovation extends to Next’s “omnichannel” strategy. The Next Directory, launched in 1988, gave the company a head start in mail-order retail, positioning it to embrace e-commerce seamlessly. By 2001, Next was the only major UK clothing retailer profiting from online sales, helped by its early adoption of technology allowing customers to order in store, while competitors such as Marks & Spencer lagged. The Directory’s infrastructure – warehouses, delivery networks and customer data – became the backbone of Next’s online platform. Today, online sales account for almost two-thirds of revenue, with physical stores contributing the remainder through more than 800 UK locations and more than 250 international franchises.

Next’s “bricks and clicks” model integrates physical and digital channels seamlessly. Stores double as return hubs, click-and-collect points and mini-warehouses for online orders, reducing delivery costs. This approach mitigates the high return rates (up to 30%) typical in online apparel by making returns convenient. Wolfson’s decision to embrace rather than suppress returns has built loyalty among customers, with stores facilitating efficient processing. The result is a defensible advantage over pure online rivals reliant on subsidised shipping.

While high-street footfall has plummeted – down 20% on a like-for-like basis since 2019 for many retailers – Next has bucked the trend. Its stores, strategically located and easy to access, drive impulse purchases, with browsers often buying more than planned. In 2024, Next reported full-year revenues of £6.1 billion, with online sales growing strongly and store sales holding steady. This resilience stems from Next’s ability to evolve. Since 2005, store sales have fallen from 77% to around a third, while digital sales have surged. Yet stores remain profitable, unlike many peers that have been forced to close locations en masse.

Next’s appeal lies in the strength of its brand and its adaptability. Its own-label clothing, complemented by third-party brands via the Label platform, offers choice and value. Homewares, now 21% of sales (up from 10% in 2005), have diversified revenue. Partnerships with brands such as Victoria’s Secret and Laura Ashley, plus a fashion start-up launched in 2025, keep the offering fresh. By maintaining quality and affordability, Next attracts a broad audience, from young families to professionals, defying the high-street malaise.

Next is Amazon for apparel

Next’s distribution prowess is a game-changer. Its logistics network, honed over decades, rivals Amazon’s in efficiency, making Next a “quasi-Amazon” for UK clothing retail. Investments in warehousing, IT and supply-chain management enable next-day delivery for 80% of online orders, with cut-offs as late as 10pm. This speed and reliability have drawn third-party retailers to Next’s Total platform, launched in 2020, which offers logistics, marketing and customer-credit services. Brands such as Reiss and JoJo Maman Bebe now piggyback on Next’s infrastructure.

This platform strategy transforms Next from a retailer into an operating system, leveraging its 458 UK stores, 267 international franchises and global websites. Overseas sales, particularly in Europe and the Middle East, grew by double digits in 2023, reflecting high returns on marketing investments. By opening its platform to rivals, Next has created a new revenue stream while reinforcing its logistical dominance, an advantage few competitors can match. As with so much else, Next is the innovator in this area, which gives it the edge on the potential for driving greater returns from investment in third-party distribution agreements.

Next’s stock market updates are a masterclass in transparency, offering investors rare insight into its operations. Wolfson’s annual reports and trading statements are candid, detailing not just financials but strategic priorities, risks and consumer trends. For example, in 2021 Wolfson forecasted a shift to online dominance, predicting store sales would stabilise at 29% of revenue, a projection that proved accurate. This clarity builds trust. When the Covid pandemic hit, Next assumed the greatest risk was demand, not supply, and acted swiftly to bolster liquidity. Recent updates highlight a “healthier-than-expected” consumer economy, driven by pent-up demand and savings, reinforcing Next’s optimistic outlook. Investors benefit from this foresight, making Next a favourite among analysts and fund managers.

Next’s approach to capital allocation balances growth and shareholder returns. Operating margins of 20% and returns on capital of 50%-60% generate substantial cash flow, funding both reinvestment and payouts. Since 2000, Next has returned billions to shareholders, with an ordinary dividend yield regularly bolstered by special dividends in strong years.

When the shares have been cheap, the company has proactively bought its own shares and cancelled them, providing a significant increase in value per share. Since Simon Wolfson’s appointment, the share count has fallen by two-thirds, increasing the value of each share threefold in the process. By reducing the share count, Next has boosted earnings per share, contributing to its 13-fold increase in earnings per share since Wolfson took over. Buybacks are paused during crises such as the one in 2020, but resume when cash flow stabilises, reflecting Wolfson’s pragmatism. Investments prioritise long-term returns over short-term gains.

Paying a premium for Next

Next is currently trading at a value premium to the market and its own history. This reflects Next’s quality, but raises questions about value. The stock isn’t cheap, yet it is a business that has consistently and demonstrably become more valuable over time, perhaps justifying this premium. Other companies with such a large national footprint as Next would be seen as mature, but Next keeps finding new ways of becoming a bigger and more profitable enterprise. It continues to leverage its technological and operational excellence to become an increasingly vital part of retail infrastructure to many companies selling in the UK.

Risks remain. A consumer slowdown could hit discretionary spending, although Next’s affordable pricing offers resilience. Infrastructure costs for digital growth and staffing expenses strain margins, although this sort of investment is arguably a crucial component of Next’s long-term success. Wolfson is still only in his 50s, but questions about succession are beginning to be raised and few would bet that a successor could replicate his tremendous success. Online competition, such as from Shein, threatens market share, although Next’s brand, quality and logistics do provide a buffer.

Next’s strengths outweigh these concerns. Analysts project continued real annual revenue growth, driven by online expansion, third-party partnerships and international markets. The company’s ability to innovate makes it a unique retail play in the UK.

It is run by perhaps one of the best CEOs, if not the best, in recent British corporate history, and has such strong fundamentals that even when the current CEO chooses to retire, it will surely remain one of the best companies in the UK. Next isn’t a bargain, but it’s hard to bet against a company that’s consistently outmanoeuvred competitors for three decades. In a world where high-street giants falter, Next continues to make big strides.

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Over the past few years electric vehicles (EVs) have developed from being niche products to becoming a well-established subsector of the vehicle market. They are only a few years away from eclipsing cars running on petrol and diesel. EVs comprise a fifth of new cars sold in the UK; if you add in hybrid cars, they also make up a majority of sales in the EU. However, many of the companies attempting to bring products to market will ultimately sink without a trace, as investors in firms such as Nikola and Fisker (both of which have filed for bankruptcy) found out the hard way.

Another company highly likely to follow in their footsteps is the US car firm Faraday Future Intelligent Electric (Nasdaq: FFAI). Founded just over a decade ago, Faraday has spent most of its history trying to break into the luxury end of the EV market, claiming that it was in the process of producing fully autonomous luxury EVs that would sell for more than six figures. More recently, it has shifted its focus to luxury SUVs and minivans containing an AI system to help users do everything from selecting the music played in the car to driving the car itself.

Faraday Future is following the herd

It’s an enticing story with two key flaws. Practically every car company in the world is focusing its efforts on both EVs and AI, so Faraday’s approach is hardly novel. More importantly, the firm has had a troubled history. Over the past 10 years, it has had to ditch plans to build a large factory from scratch in Nevada, while its founder and former CEO declared personal bankruptcy. In the meantime, it has delivered only a handful of cars to customers (many of whom were investors in the company or worked for it). Things are so bad that at the start of the year, it was reported that the company’s flagship SUV is essentially just a rebadged model of an SUV made by a Chinese firm.

Faraday’s accounts make for painful reading, with the company losing $13.8 million on sales of $539,000 in 2024, which means that the shares cost around 330 times trailing sales. While sales are expected to pick up this year, it is still set to lose money. Meanwhile, Faraday has burned through the vast majority of the cash it received when it went public in 2021 (via a special purpose acquisition vehicle, naturally).

Faraday’s status as a company targeted by short-sellers meant that last year it briefly became a “meme stock”, resulting in its share price surging. However, the shares rapidly fell back and investors seem to have lost interest in them, as evidenced by the fact that they have fallen by more than 60% this year. Faraday is now trading well below both its 50-day and 200-day moving averages. I suggest shorting it as the current price of $1.39 at £8 per $0.01. In that case, I would put the stop-loss at $2.50, giving you a total downside of £888.

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They say health is wealth, but healthcare investors might disagree. The sector has had a tough time over the past few years. Policy noise in the US has been a major headwind recently, but even before that investors’ focus was drawn elsewhere as areas such as technology raced ahead. “For the 30-year period from 1989-2019, the US healthcare sector closely tracked technology returns, and with considerably lower volatility,” notes Michael Cembalest in a research paper for JPMorgan. “Things have changed since then.”

The MSCI World Health Care index has delivered five-year annualised returns of less than 6%, lagging the broader MSCI World index at 13%. The MSCI World Information Technology index has delivered 17% over the same period. Sentiment about the sector has soured further in 2025 – and it is easy to understand why. The US is the world’s largest healthcare market and when Donald Trump was inaugurated in January, he promptly appointed a vaccine-sceptic as his health secretary. This set the tone for what was to follow.

There are three key threats: efforts to control drug pricing, tariffs and possible tax changes. There is little doubt the sector is trading cheaply. The question is whether it offers good value in light of the risks.

Three big, beautiful policy risks

Donald Trump thinks US customers are being ripped off when it comes to drug pricing. He told reporters that a friend in London pays $88 for a weight-loss treatment that costs $1,300 in New York. So earlier this year, he published an executive order demanding “most-favoured nation” prices for US customers – an attempt to bring US prices in line with the lowest costs offered elsewhere. Pharmaceutical companies have been threatened with “every tool in the federal government’s arsenal” if they refuse to step up. The threat is vague, but has nevertheless created nervousness.

The majority of global pharmaceutical profits come from the US market – around 70%, according to the University of Southern California. Rather than cutting prices in the US, companies could simply decide to pull out of less lucrative markets, reducing access to drugs for patients and denting pharmaceuticals’ profits.

The second threat is tariffs. Trump is keen to boost US manufacturing and is using tariffs as a way of doing so. He has announced a 100% levy on imports of branded or patented drugs from 1 October, although manufacturers that are building a site in America will be exempt. Tariffs aren’t the only tax investors need to consider either. The Trump administration also has an eye on corporate income-tax loopholes that pharmaceutical companies have been exploiting. Pfizer paid zero in federal taxes in 2019 despite selling $20 billion of drugs in the US, according to an investigation from the US Senate Finance Committee. This was due to round-tripping – a mechanism whereby income from US sales is treated as foreign for tax purposes. Ways of achieving this can include using offshore manufacturing or shifting intellectual property rights to tax havens. “We’re going to try and fix a whole bunch of these tax scams,” said commerce secretary Howard Lutnick, speaking on a podcast in March.

Is this all as bad as it sounds?

Some of the risks might have been overstated. Look at “most-favoured nation” pricing. There is scepticism about whether Trump will actually be able to implement it on any kind of scale. In his first term, he tried to control the price of a handful of drugs covered by Medicare, but was blocked by a federal judge. Wide-sweeping price controls this time would almost certainly require the support of Congress – something Congress doesn’t seem to have the appetite for.

Meanwhile, pharma companies have been making moves to try and get ahead of tariffs. The measures that kick in from the start of October only affect companies that aren’t building a site in the US. In recent months, scores of companies have been making commitments. In July, Swiss and UK giants Roche and AstraZeneca both pledged $50 billion in investments in the US over the next five years, building and expanding research and development and manufacturing sites. AstraZeneca said its goal is for 50% of revenue to be generated in the US by this date.

US pharma companies have also made big commitments to domestic manufacturing. Earlier this year, Eli Lilly pledged an additional $27 billion for four new plants, and Johnson & Johnson announced a $55 billion investment over the next four years.

While this will help the industry navigate tariffs, it is possible that some companies will lose tax advantages by moving their manufacturing facilities to the US. Karen Andersen, research director at Morningstar, says analysts have been building a ramp up in tax rates into their models over the next few years as the reorganisation goes through.

Healthcare stocks are going cheap

Headwinds in the sector mean valuations look cheap. The MSCI World Health Care index is trading at around 16 times its forecast earnings, compared with 20 times for the MSCI World index. Individual names are trading on lower multiples. “Pharma stalwarts such as Merck, Pfizer and Bristol Myers Squibb trade at forward price/earnings (p/e) ratios of just eight to nine times, and biotech trades at one of the largest valuation discounts in the market,” notes Cembalest. The question is whether it is worth it given the risks.

On the one hand, we are starting to get a better sense of how Trump works. Recent stockmarket reactions have been less pronounced as a result. In July, Trump sent letters to 17 pharmaceutical companies threatening repercussions if they didn’t adopt most-favoured nation pricing. Investors largely shrugged off the news. Markets have also taken the latest tariff announcement in their stride. “Investors see more bark than bite,” says Lale Akoner, global market analyst at investment platform eToro. The objective of tariffs is to force supply chains onshore in the US – not to raise prices at the pharmacy counter. “European pharma gets nudged to localise, while US firms gain a policy tailwind.” That said, valuations are likely to remain suppressed for as long as the policy outlook is uncertain. Consider most-favoured nation pricing. Trump’s plan sounds overly ambitious, but “the problem is that the impact is so big that it’s a difficult risk for the market to ignore, no matter how unlikely it might be,” says Andersen.

Is investing in healthcare stocks worth the risk?

One fund manager who has been investing in the field for 25 years told me that every time there is nervousness around pricing in the US, the sector underperforms. “Before buying more of this stuff, investors need clarity on the earnings forecast,” says Gareth Powell, head of healthcare at Polar Capital. We could get more certainty over the coming months. The deadline given to pharma giants for complying with Trump’s price demands was 29 September. Further detail on tariffs has already emerged, but there are still questions about how regions with pre-existing trade deals will be treated.

“Headlines about the imposition of 100% tariffs on branded drugs appear to contradict the previously discussed 15% cap for European firms,” say Ailsa Craig and Marek Poszepczynski, co-managers of the International Biotechnology Trust. Until these pieces of the puzzle fall into place, bargain-hunting in the sector requires bravery.

On the plus side, there have been some bright spots. Biotech investors point to pro-industry noise from the FDA regulator, including a pilot programme to reduce the review time on new drugs and therapies from 10 to 12 months to just one to two, if they meet certain criteria. This is a marked improvement from earlier this year when investors were worried that mass firings at the FDA would result in a slower approval processes.

Active investors can also adjust their portfolios to manage the risk associated with policy threats. “The way I would look at it is on a case-by-case basis,” says Andersen. Is the company particularly reliant on government reimbursement for one of its key products? Does it have a significant manufacturing footprint outside of the US? One way the International Biotechnology Trust is managing the risk is by tilting into rare diseases, with more than 30% of the portfolio allocated to this theme. “This tends to be much more similar in price in both Europe and the US,” says Craig, meaning therapies should be less exposed to Trump’s interference with drug pricing.

Where to invest

If you are looking for broad exposure to the sector, the Polar Capital Global Healthcare Trust (LSE: PCGH) is one to consider. The trust has large overweight positions in healthcare equipment and biotechnology. It is underweight on pharmaceuticals relative to the benchmark – a position driven by concerns about the impact of Trump’s pricing threats on mega-cap pharma companies. Those who prefer passive exposure could look at the Xtrackers MSCI World Health Care ETF (LSE: XDWH), although today’s volatile policy backdrop could better lend itself to active stockpickers.

The area that looks most interesting in my view is biotech. This is where most of the innovation happens, with big pharmaceutical companies swooping in to acquire biotech firms that are developing a promising drug. We should see more merger and acquisition (M&A) activity over the coming years as a significant patent cliff-edge is looming for big pharma. Drugs worth $180 billion in annual revenue (equivalent to 12% of the global market) will be coming off patent in 2027 and 2028, according to figures cited in the Financial Times. This is putting pressure on pharma companies to shop around for new products in the biotech sector.

The International Biotechnology Trust (LSE: IBT) gives exposure to this part of the market. The managers have had strong success identifying acquisition targets, with 30 portfolio holdings having been snapped up through M&A since 2020. Investing in biotech is a risky business, but the trust is heavily weighted towards companies with drugs in late-stage clinical trials, as well as those that have completed trials already and are waiting for approval from the regulator. This makes it a good pick.

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Manulife CQS New City High Yield Fund (LSE: NCYF) aims to provide investors with a high gross dividend yield (currently 8.8%) and the potential for capital growth by investing mainly in undervalued, high-yielding fixed-interest securities. Around 87% of the portfolio is in fixed-interest securities, with 13% in equities (there is a 20% limit on equity exposure). With respect to currencies, 69% of the portfolio is in sterling, 18% in US dollars and 13% in euros.

As one of the smaller fixed-income funds, NCYF can participate in highly attractive small corporate-bond issues, which are often inaccessible to larger funds owing to their minimum-size requirements. The manager’s prudent risk-management focus has resulted in only three defaults since the fund’s inception in 2007 and enabled NCYF to increase the dividend every year for 18 years.

Three overlooked companies to consider

The largest holding is Shawbrook Group 12.103% Perpetual. Shawbrook is a challenger bank offering lending and savings services for commercial (real-estate and smaller companies) and retail (mortgage- and consumer-finance) customers. It is highly profitable, and its organic growth has been boosted by acquisitions in areas such as vehicle finance and smaller-company lending. Its Common Equity Tier 1 ratio (a gauge of a bank’s core capital adequacy) hovers around a comfortable 13% (3% is the minimum requirement).

The balance sheet and loan book have more than doubled in the last five years to £20 billion and £17 billion respectively. As is true of most challenger or specialist lenders, underwriting at Shawbrook is often manual, reflected in robust net-interest margins of 400 basis points, and a moderate cost of risk of 40 basis points.

The funding side is driven by retail savings, mostly fixed-rate and term, and 90% of the £16.7bn of retail-savings deposits are small enough to be insured by the Financial Services Compensation Scheme. The bank’s lack of coverage by equity analysts and infrequent smaller bond deals means it is often overlooked.

Consider also Stonegate 10.75% 2029. The firm operates a network of pubs, clubs and bars. It is a large player in a fragmented market with a market share of 10%; a supportive sponsor, as demonstrated by its last £250 million equity injection; good asset coverage, with £3.2 billion of real estate; and an improved financial profile. Although Stonegate still faces headwinds and the environment remains volatile, the company is advancing on its initiatives to optimise its assets through the conversion of pubs, disposals, and reducing the number of late-night venues.

There is also a focus on bolstering its appeal to customers, price increases with limited volume elasticity, and cost control. All these factors should lead to an improved free cash-flow profile. The group has no near-term maturities, while liquidity remains adequate. We believe that at 10.75% the bonds remain attractive.

Frontline (NYSE: FRO), the largest equity holding, is a world-leading shipping group transporting crude oil and refined products with a modern, energy-efficient fleet of tankers. Frontline is a beneficiary of sanctions against Russia and Indian refiners shifting some of their imports into the compliant market.

Should the war in Ukraine end, any exports of Russian crude would need compliant, insurable ships rather than the uninsured dark fleet currently used. We are also seeing a major increase in exports from West Africa to Asia, a highly profitable route for shippers. The high payout ratio makes this stock attractive for income investors.

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Domino’s Pizza (Nasdaq: DPZ), the US arm of the global Domino’s brand, has been a fantastic investment for those shareholders who’ve stuck with the business over the past 15 years. According to figures compiled by Morningstar, the stock has generated a total return of 27.1% per annum over the past 15 years, outperforming the benchmark index, which returned just 14.4% over the same period.

Domino’s business model is simple. It runs an “asset-light” franchise model supported by a vertically integrated supply chain and advanced technology. Most of its earnings come from franchise royalty fees and income generated from selling supplies via its supply-chain network. This translates into a highly cash-generative business model.

Last year, Domino’s generated cash flow from operations of $625 million and invested just $31 million back into the business. Virtually all of the remaining cash was used to repurchase stock and fund the dividend, a strategy management has followed for some time. Over the past five years, share buybacks have almost doubled earnings per share growth.

Troubles at Domino's Pizza Group

Sadly, the UK arm of Domino’s, listed as Domino’s Pizza Group (LSE: DOM), hasn’t been able to replicate the performance of its much larger US-listed peer. Earlier this month, the stock hit a 10-year low.

The last time the shares were changing hands for 200p, earnings were two-thirds of today’s level and the share count was 100 million higher than today, suggesting something has gone seriously wrong. The stock hit an all-time high of more than 450p in December 2021. Since then, it’s been on a roller coaster, with the current decline starting in 2023. It’s since lost 50%.

The company’s troubles can be traced back to the appointment of the current CEO, Andrew Rennie, who joined the board in August 2023. A few months after Rennie joined, it emerged that the team was looking to buy a second fast-food brand to add to Domino’s UK empire.

The company believed it would be able to leverage its size and experience to build a new brand into a force to be reckoned with, replicating Domino’s near 60% share of the UK pizza market. It’s beginning to look as if management has taken its eye off the ball in the hunt for a second acquisition.

At the beginning of August, the group issued a major profit warning, saying that, due to a “tougher operating environment”, it was lowering its 2025 profit forecast by 12%. A decline in like-for-like sales and flat total orders added fuel to the fire.

Cyclical issues

However, Domino’s issues appear to be cyclical rather than structural. The group remains highly cash generative and, while growth has evaporated, consumers are loyal.

Its loyalty programme trial, for example, is performing ahead of expectations. Management recently outlined plans to return £20 million to shareholders via buybacks. According to Panmure Liberum, this represents about 2.6% of the share capital and could yield an equivalent rate of return of 12.6%, comparable to an annual profit boost of £2.6m.

Panmure Liberum calculates that if Domino’s returns more than £50 million, the rate of return jumps to more than 13%.

At this rate, it makes sense for the company to use its funds to retire shares rather than acquire other businesses. Panmure Liberum estimates that, in the most aggressive scenario, where Domino’s takes leverage up to the top end of its target (2.5 time earnings before interest, tax, depreciation and amortisation), the group can spend £219 million by 2029 buying back stock using both debt and free cash flow from operations – around a third of its current market value. Activist investor Browning West is campaigning for the company to do just that.

Domino's Pizza Group: the verdict

Browning West owns 5% of the firm, making it one of the largest shareholders. The founder and chief investment officer, Usman Nabi, recently wrote to Domino’s asking it to “pause any contemplated acquisitions for six months and immediately initiate a significant share-buyback programme of at least £100 million to be completed before year end”.

He explained this approach would make the most sense for the company, as a large deal would come with enormous risks for the business, as well as requiring a significant amount of the senior management team’s time. He argued it would be better to focus on the group’s current operations and growth.

An activist at the gates isn’t always good news, but in this case it could prove to be the shove the board needs to change direction. The recently announced £20 million buyback is a positive sign and is expected to generate robust returns on the cash.

After recent declines, the shares are also trading at one of the lowest valuations in recent history and the stock looks incredibly cheap compared with its international peers. Domino’s offers a rare combination – a strong brand going cheap.

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Thirty-eight years after banker Walter Salomon died, his son William has at last finished untangling his inheritance. Initially, many assumed that the complex web of corporate cross-holdings between various investment trusts and trading companies held a hidden pot of value. But it soon became apparent that the only value was what could be created from the parts.

The thorniest problem was a business operating tug boats in Brazilian ports. This was turned into a port services and logistics group and floated on the São Paulo market as Wilson Sons, in 2007, with UK-listed Ocean Wilsons (LSE: OCN) retaining a majority holding.

Ocean Wilsons is in turn controlled by Hansa Investment Company (LSE: HAN) and private trusts associated with the Salomon family. Hansa is itself controlled by the same family trusts through majority ownership of the voting shares, which comprise a third of the total share capital.

Last October, Ocean Wilsons sold its stake in Wilson Sons, leaving it with a large pile of cash and a portfolio of investments. Then at the end of July, Hansa and Ocean Wilsons agreed to merge, creating a single trust with assets of £900 million. The merger, which was approved by shareholders last week, is being implemented by the issue of both voting and non-voting shares. So Hansa will continue to have a two-tier structure and be controlled by the Salomons.

Hansa’s voting shares trade at a 31% discount to net asset value (NAV) and its non-voting shares at 33%, with the stake in Ocean Wilsons accounted for at market value. However, these discounts will rise above 40% when the merger is completed since Ocean Wilsons is trading at a near 40% discount. Any narrowing in that discount will depend on buybacks and performance. Buybacks will be limited to 2%-3% per annum as they are intended to top-up Hansa’s modest 0.9% yield rather than add value or reduce the discount, so performance will have to do the heavy work.

Hansa Investment Company: an attractive opportunity?

Hansa has returned 8.5% over one year, 35% over three and 63% over five. These lag the MSCI All-Country World index (12%, 41% and 81% respectively), but Hansa doesn’t seek to keep pace with equity markets. Instead, like RIT Capital Partners, it aims to protect against bear markets via a multi-asset approach.

Hansa has significantly outperformed RIT in recent years, especially over three years, largely due to its much lower exposure to private equity.

Only 10% of the portfolio is in direct equities and less than 1% in private equity, while 10% is in “diversifying funds” – eg, hedge funds – 53% in “core and thematic funds” including its 23% stake in Ocean Wilsons and 10% in a S&P 500 tracker. Ocean Wilsons’s portfolio is similar, with greater private equity. Investing via managed funds implies higher costs, but reduces portfolio turnover and thereby dealing costs.

Both portfolios are managed day-to-day by Alec Letchfield, who joined from HSBC in 2013. “We have been unashamedly bullish of equity markets, and in particular the US stockmarket, for many years now, ensuring that we remain fully invested,” says Letchfield in Ocean Wilsons’s annual report. This implies that he is ready to reduce equity exposure if his view changes, but he has done well not to have done so prematurely.

Hansa’s complicated history means that it doesn’t have the profile of RIT, Ruffer, Capital Gearing, or Personal Assets, but its performance record is a match for all of them. The discount of 40% is a bargain and will surely decline with time. The annual charge is being reduced to around 0.75% as a result of the merger. The voting structure protects the trust from corporate raiders and the buy-back policy is not set in stone. For the investor who is cautious, but not terrified by uncertainty, it’s an attractive long-term investment.

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At Odyssean Investment Trust we seek to invest in high-quality UK businesses trading below their fundamental value, with scope for that value to grow through proactive management action. One area where we have been active recently is an unglamorous part of the market: British small-cap industrials.

The UK industrials sector is overlooked and unloved. Investors often conflate “industrials” with visions of grubby metal bashers serving a diminishing manufacturing base. In truth, this sector is highly diverse, and for those prepared to look, you can find a number of first-rate, globally-focused businesses with exciting growth prospects.

To find the gems in industrials, we look for three key attributes. First, the most attractive companies utilise their own intellectual property in their products or production processes, allowing them to be global leaders within a niche. Expertise that is hard to replicate creates a significant economic moat to underpin any investment.

Second, while industrials can be cyclical, many companies enjoy exposure to long-term growth megatrends such as AI spending, renewables investment or growing demand for healthcare. Short-term swings can often hide longer-term secular stories, offering opportunity for the patient investor.

Finally, industrials businesses can be complex: managing production, ongoing research and development (R&D) and an evolving demand environment are not easy. High quality management can add significant value; backing proven, experienced teams is crucial.

Three British industrial stocks that are powering profits

XP Power (LSE: XPP) fits our criteria nicely. The business is a leading designer and manufacturer of power supplies that enable high-technology applications across industrial, healthcare and semiconductor end markets. It uses its world-leading expertise to design power supplies that meet the needs of the most demanding cases.

The group has a strong track record across the cycle, benefiting from growing demand for semiconductor-manufacturing capacity – a trend set to continue given current geopolitical and AI demand drivers. Led by a proven team who have delivered strong operational control through the recent cyclical downswing, this stock’s long-term potential is overlooked by the market.

Another emerging UK industrials champion is Xaar (LSE: XAR). The company manufactures ink-jet printheads with unique technology that allows the deposition of high viscosity fluids at high accuracy for a range of industrial applications. Based on intellectual property developed over many years, the group’s print heads are sold globally and are the core component of its customers’ printing machines.

The group is active in a number of sectors, but under its current leadership has recently used the unique abilities of its technology to open up markets previously unaddressed by ink-jet deposition solutions. These new opportunities offer a route to long term growth regardless of shorter-term market cycles and, we believe, herald an exciting future for the company.

Another UK-based industrial with a niche, global leadership position is Dialight (LSE: DIA), a leading provider of LED lights used in hazardous industrial environments. The group’s design expertise allows it to offer industry-leading reliability, critical for the extreme, niche-use cases it serves.

LED lighting continues to gain share from traditional alternatives given its higher reliability and lower power usage, providing a tailwind of growth for the group across economic cycles. After a tough period, Dialight has been rejuvenated in recent years under a new leadership team with proven experience of driving value at industrial businesses. We believe it is one more of the gems in UK small-cap industrials.

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While many technology firms seem to have reached the stage where they are making money from AI, other companies have achieved huge valuations based solely on a promise of future profits. And some have not yet even been able to make their technology commercially viable. These companies are particularly vulnerable to any shift in market sentiment.

One that may have promised far more than it can deliver is Aurora Innovation (Nasdaq: AUR). Aurora Innovation focuses on the development of self-driving trucks, arguing that by doing away with the need for a driver, it will cut the costs of transportation and be able to grab a large share of the US trucking market – which had revenues of $987 billion in 2023. The company boasts it has already conducted many tests to prove the technology works on various highways in the US and is poised to roll it out across the rest of the country.

Flaws in Aurora Innovation's plan

However, analysts are sceptical, with Sahm Adrangi of Kerrisdale Capital arguing that the group’s product suffers from two major flaws. Firstly, its bespoke system (like many other companies involved in self-driving) relies on Aurora spending huge amounts of time and money mapping each of the 50,000 miles in the US Interstate Highway System. Despite years of research and development (R&D), it has managed to map and test fully only a 200-mile stretch of highway, with a few hundred additional miles in the pipeline.

Even when this task is finished, it will only be able to operate on highways rather than within cities. This means that companies that use them will first have to deliver their goods from their factories or warehouses to special terminals, where they will be handed off to Aurora’s trucks, with the same thing happening in reverse once they reach their destination. The costs of this additional step will mean that making a trip using Aurora’s technology will actually cost more than using ordinary manned trucks for all but the very longest journeys, which represent a tiny fraction of deliveries.

Given these dismal economics, it is not surprising that Aurora’s gross revenues are expected to amount to a paltry $40 million in 2026, with annual losses predicted to rise to $864 million in the same period, compared with losses of $91 million in 2019. Throw in competition from other firms pursuing similar technology, and it is hard to see how Aurora’s valuation of roughly $10.5 billion is sustainable.

Not surprisingly, the market seems to be cooling on the self-driving truck company, with the share price down by half from its peak at the start of this year. It is also below both its 50-day and 200-day moving averages. As a result, I suggest you short Aurora at the current price of $5.73 at £2.25 per $0.01. In this case, you should cover your short if it gets above $9.73, which gives you a total downside of £950.

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The rise of artificial intelligence (AI) has made it incredibly easy for criminals to attack computer systems. Defending against these attacks is now at the front of mind for many of the world’s businesses and consumers. Indeed, a quick online search for the word “cyberattack” shows the scale of the problem. At the end of August, US AI company Anthropic said its technology had been “weaponised” by hackers “to commit large-scale theft and extortion of personal data”. It said its tools had been used to hack 17 organisations, including government bodies. And that’s just one headline.

So it’s no surprise an arms race has developed between cybercriminals and security experts. Okta (Nasdaq: OKTA) is one of the businesses in the vanguard. The US firm offers a platform that enhances security by verifying users’ identities. It provides secure identity verification, single sign-on (SSO) and multi-factor authentication (MFA) to protect identities and enable users to access apps from any device.

How Okta missed out on a rally

SSO allows users to sign on to multiple platforms with a single set of credentials, removing the need to remember numerous passwords. That’s especially important as AI’s ability to crack passwords improves. The current best practice for passwords today is to use unique, randomly generated pass phrases of 12-16+ characters, combining uppercase letters, lowercase letters, numbers and symbols. Many users resort to simple, easy-to-remember passwords and reuse the same password across multiple platforms.

Okta’s MFA provides other authentication methods to approve a sign on, adding a critical layer of security. It’s a step-up from the two-factor authentication process that’s become universal in the banking industry over the past five years. Two-factor authentication comprises two forms of identification, such as a password and a code sent via text message. MFA can include three or more layers, including biometrics and a random number code generator app.

Demand for the company’s authentication software is brisk. Okta is forecasting sales of just under $2.9 billion for the 2026 financial year, up from $234 million in 2021, a compound annual growth rate of 36.1%. However, over the past five years, the shares have lost 55% of their value and Okta has missed out on much of the AI-fuelled rally that’s taken place over the past 12 months.

There are two reasons for the company’s lacklustre performance. Firstly, while revenue has grown exponentially over the past five years, it has slowed in the past three, falling to a compound annual growth rate of about 15%. The second issue was that in 2022, the shares fell by more than 70% after it was revealed that hackers had stolen information on all users of its customer support system in a network breach. It has taken Okta a few years to conduct a thorough review of this breach and make changes to stop it happening again.

Okta's return to growth

Okta appears to be moving past the issues that have plagued the business over the past three years. Its second-quarter earnings release blew past Wall Street and management expectations. A key part of the growth came from US government contracts. Despite Trump’s plans to cut spending, the overall trend across government contracts was positive, according to the company. Overall for the quarter, the company’s net retention rate, a metric to show growth with existing customers, came to 106% in the quarter, unchanged from three months ago. This rate, according to UBS, should accelerate over the coming quarters as the headwinds of the Covid-cohort of customers roll off and Okta returns to organic growth with its new, improved tools.

Management believes there’s a huge opportunity to profit from the growth of AI agents, autonomous software systems powered by generative AI that can reason, plan and execute tasks. This market is expected to grow from $5.7 billion in 2024 to $52.1 billion by 2030, according to the Boston Consulting Group, with a compound annual growth rate of 45%. Okta has built a niche in agent-to-app and app-to-app access, and last month it paid $100 million to acquire Axiom, a start-up specialising in non-human identity security.

Despite its potential, there’s still scepticism surrounding the company and its outlook. This could present an opportunity. Right now the shares are trading at a forward price-to-earnings ratio (p/e) of 27.1, on UBS estimates, falling to just 16.6 by 2030. Strip out Okta’s $2.4 billion projected year-end net cash balance ($13 per share) and the ratio falls to 23. The company’s cash generation is even more impressive. It’s trading at a free cash-flow yield of 4.8%, making it somewhat of an outlier among tech stocks. For fiscal 2026, UBS has the company generating a free cash flow of $819 million with a free cash flow margin of 28.4%.

Okta’s valuation also appears cheap compared to Palo Alto’s recent acquisition of CyberArk. The two companies both specialise in securing access points within networks, with CyberArk focusing on the mission-critical, highest risk accounts. Still, Palo Alto paid $25 billion to get its hands on the group’s technology, for a business generating just $1.3 billion in annual recurring revenue as of the second quarter. Analysts believe the deal could be a net positive for Okta’s shares due to the dwindling number of opportunities in the space. UBS also believes the deal could be a positive development for Okta’s sales as customers look for an independent option, one that’s not controlled by one of the tech sector’s most prominent players.

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The television drama Succession ended two years ago, but the fictional squabbling of the Roy family reflects how many family firms – where a family or the founder retains a major stake – are still viewed. Sometimes that view would not be far from the truth – families and founders do indeed sometimes treat their firms as their “own little fiefdoms” and minor investors can end up being “treated poorly”, says Tom Wildgoose, head of equities at Sarasin & Partners. Family ownership can also, however, give rise to “pride in building the business in a long-term and sustainable way”, which means staff and customers are treated well. Here, we consider why you may want to have some family firms in your portfolio, as well as how to distinguish the good from the bad.

Perhaps the most obvious benefit of family ownership is that “you’ve got a group of people who are extremely committed to the company and its long-term survival”, says Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity Fund. Unlike institutional investors, who tend to sell at the first hint of trouble and are reluctant to get involved with the company’s daily operations, families “are less concerned with every fluctuation in the firm’s share price, or quarterly twist and turn”. Instead, they “care more about doing what is strategically right for the business”.

This is important because professional managers tend to focus too much on the short term, say George Godber and Georgina Hamilton, managers of the Polar Capital UK Value Opportunities Fund. The chief executive of a FTSE 100 company stays in post only for an average of around five years, so they have no financial incentive to make long-term investments that might only pay off in 10 – all the more so if making the investment means cutting profits for the next year or two, which is the time frame over which the market usually judges a company’s performance.

Godber and Hamilton point to Morgan Sindall as an example. Founder John Morgan still owns a large chunk of the shares, making him the second-largest shareholder. This has given him the incentive and power to get the firm to make investments in its social-partnership and urban-regeneration businesses. An ordinary CEO “simply wouldn’t have done” this. The company is now set to reap significant rewards from this forward-thinking behaviour and spending, as these areas provide a source of future growth.

Michael Field, chief European market strategist at Morningstar, agrees that a family with “skin in the game” in the form of a large stake can help hold management to account, especially when it comes to using funds in an efficient and productive way. Executive short-termism is a problem, but a lack of accountability can also lead to the opposite issue – what Field calls “empire building”. Even when a company has few opportunities for investment-led growth, chief executives may go on a buying spree or make other dubious investments rather than distribute the cash to investors, in the hope of increasing their pay and prestige. Family owners, in contrast, “may depend on the income they get from their dividends to survive”, so they will want to ensure the firm’s money isn’t just wasted. Family ownership can, then, help ensure the firm is run in the interests of all investors – including those interested in a regular income.

Smit notes that the same incentives that make family firms put reins on executives eager to buy other firms also makes them more focused on “one, or just a few, areas of business”. This increased concentration gives them an edge over more bloated conglomerates, that can come to lack purpose.

Overall, there is “a huge amount of academic research suggesting that family-owned companies tend to outperform their rivals”, notes Wilfrid Craigie, a senior investment analyst at Asset Value Investors. Craigie points to work by the now-defunct Credit Suisse Research Institute, which compiled a list of the top 1,000 family firms (defined as a firm where a family or the founder owns more than 20% of the shares or voting rights). They found that, between 2006 and 2022, family-owned firms beat the market by an average of about 3% per year, even when adjusting for the sector in which a company operated. Smaller firms did particularly well.

It’s not all smooth sailing for family firms

Despite the evidence that family firms deliver better returns on average, Craigie emphasises that, in many individual cases, they also come with drawbacks. One of the most obvious is that family influence means outside shareholders have “less power to influence the company’s direction”. What’s more, there have been many cases where the family hasn’t acted in the best interests of other shareholders. In the worst-case scenarios, such companies can be treated “as something of a piggy bank for the family controlling them”.

Field agrees that family ownership can be a “double-edged sword” because family-controlled firms may not have the same consideration for minority shareholders that typical public companies do. He notes a number of controversies where family owners floated their company to raise cash, then “stood by as the share price fell, using it as an opportunity to buy back the outstanding shares at a much lower price, with the result that the minority shareholders lost out”.

Family firms, in general, may also “not be as professionally run as other firms, and lack the transparency and communication that you would expect from companies of their size”. Field cites the examples of SGS in Switzerland and Bureau Veritas in France, two family-owned testing and inspection firms, as being far worse than their British rival, Intertek, when it came to transparency and communication. This has a knock-on impact on how some family firms are viewed and valued by the market.

This last point is particularly crucial. The market’s “mistrust” of family firms means that, even if the controlling family isn’t behaving badly, the perception that they are not being fully straightforward can have a devastating impact on a company’s share price. Field points to the catering company Sodexo, which removed its outsider CEO and installed Sophie Bellon, the daughter of the company’s founder, in his place. Although the move “wasn’t necessarily a bad idea in itself”, the company’s shares fell on the news because “markets were sceptical about the idea of a family owner installing themselves as CEO without a proper global search”.

How the outlook for family firms differs globally

The nature of family ownership tends to differ from country to country. James Harries and Blake Hutchins of Troy Asset Management note that the US has many “amazing family businesses that have become multi-million, or even multi-billion-dollar firms”. There is also “a rich tradition of well-run family firms in the Nordic countries, especially in Sweden”, while continental Europe, too, has many successful, multi-generational, family-run firms, says Craigie.

But in countries such as France, many family firms are structured to minimise the tax their owners have to pay (an important consideration given the country’s wealth taxes). “So you end up with very complex cascading structures where one holding company owns a stake in another holding company.” The market generally doesn’t welcome the complexity of such structures, so they tend to trade at a “discount to the discount”, says Craigie. Many European family-owned companies “have managed to survive for multiple generations” – sometimes for as many as five, six, or even seven – those in Asia have more problematic attitudes toward stewardship. In that case, “as sad as it is to say, the old cliché about the second and third generation squandering what the first generation built up might have a ring of truth to it”, something that also applies to Latin America.

Gaurav Narain, principal adviser at the India Capital Growth Fund, is blunt about the shortcomings of Indian firms. High taxes and poor governance meant that, until recently, they were notorious for founders and family owners using dubious transactions between separate parts of their business empire to divert money from the pockets of both shareholders and the taxman. What’s more, due to the relatively large size of many Indian families, “the number of family members involved kept increasing to the point where you didn’t know who was calling the shots”.

The good news is that such attitudes are changing. Narain points out that many Indian tycoons are educating their children outside the country. This new generation of Indian business leaders, who are now playing major roles in their family companies, are “trying to incorporate the best practices of the US and elsewhere when it comes to corporate governance”. This means having a strong board and getting professional managers as executives, “with the family members providing strategic direction rather than being in charge of the day-to-day management”. Indian family firms are hence “now very well-run businesses”.

Similarly, Craigie notes that over the past few decades, sprawling European conglomerates have started to rationalise and simplify their structures. This process is by no means complete, but the pace of change is quickening, possibly helped by the fact that countries such as Germany, the Netherlands and France have abolished their wealth taxes. As well as making family firms easier to manage, these changes have helped unlock a lot of the value hidden away in the web of interconnected holdings, as well as reducing the discount the market applies to such entities.

What investors should look for (and avoid) in family firms

There is a strong consensus that, when deciding which family firm to invest in, one of the most important things to watch out for is the quality of the firm’s governance. Like Narain, Craigie thinks the best situation is where there is a division of labour between family members and professional executives. In an ideal world, such firms “would be run by professional managers, with the rights of minority shareholders protected, while the family provides more of a long-term ethos”. He also likes to see evidence that the company is allocating capital efficiently.

Another key factor in judging the strength of governance within a family firm is transparency, says Field. This can be demonstrated by the documents they produce and “the level of detail they go into about their business in terms of revealing numbers and strategy”. If a family-run firm proves as transparent as its peers, that is a good sign. However, if it isn’t willing to get into much detail about how their business is doing, then that is a definite “red flag”.

Investors should also be particularly wary of investing in family-run companies that have been rocked by “incidents in the past or various scandals”, says Field. At the same time, it could be worthwhile to buy into a family-run company that is genuinely “trying to take positive action to improve the quality of its governance”. Of course, deciding whether the change is genuine involves some work, as it is easy for firms to come out with rhetoric claiming they are trying to change “without doing anything meaningful”.

In short, “you need to check to see the exact steps that they are actually taking”, says Field. Increasing the number of independent, non-family members on the board of directors would be a positive step, for example. Or changing divisions or moving away from certain unprofitable business areas. One positive sign that a company has moved on from a scandal is if “it is able to demonstrate proper accountability by having heads roll in the boardroom”, even if that means family members lose out.

The best investments to buy now

AVI Global Trust (LSE: AGT) invests in lots of family-owned companies, as analyst Wilfrid Craigie believes they fit the fund’s mandate of “investing in durable, growing businesses at deeply discounted valuations”. The trust’s top five holdings include Vivendi (controlled by the Bolloré family), News Corp (Murdoch family), and D’Ieteren Group (D’Ieteren family). The AVI Global Trust, run by Joe Bauernfreund, has outperformed comparable investment trusts over the last one, three and five years, and trades at a discount of 6.4% to net asset value. The ongoing expense ratio is just 0.87%.

Craigie thinks D’Ieteren Group (Brussels: DIE) is “a real crown jewel”. Even after more than doubling its revenue and growing its adjusted earnings fivefold from 2019 to 2024, it trades at only 12.6 times 2026 earnings, a multiple that should increase if the company follows through on plans to float subsidiary Belron, in which it owns a 50% stake.

Another investment trust with a strong family focus is the India Capital Growth Fund (LSE: IGC). Principal adviser Gaurav Narain estimates that the majority of companies in the portfolio are family-owned, including the two largest, Dixon Technologies and Skipper. The fund has returned an average of 15.3% a year since it was set up in 2011 and has outperformed other India trusts over the past five years. It trades at a discount of around 6% to net asset value and has an annual management charge of 1.25%.

Narain is particularly bullish about PI Industries (Mumbai: PIIND). It has built up a great reputation with global companies because, unlike many rivals, it respects intellectual property rights. The decision by the Singhal family to professionalise the management has also helped the firm grow earnings by roughly 20% a year.

As stated in the main story, George Godber and Georgina Hamilton of Polar Capital are big fans of Morgan Sindall Group (LSE: MGNS), a UK-based construction and regeneration group that “epitomises” the type of founder-driven firm that is able to deal with challenges as they arise. Morgan Sindall has seen its revenue grow by half between 2019 and 2024 and is expected to keep growing strongly. Income investors are now reaping the rewards of this growth, with the dividend increasing more than sixfold during this period. Morgan Sindall trades at 13 times 2026 earnings and pays a dividend yield of 3.4%.

A promising European firm is EssilorLuxottica (Paris: EL), about a third of which is owned by the Del Vecchio family (descendants of Leonardo Del Vecchio, who founded Luxottica). Gerrit Smith particularly likes the fact that, although the family is not involved in day-to-day management, they “have helped give the firm a strategic focus, as well as a long-term plan”. EssilorLuxottica continues to enjoy strong growth, with sales more than doubling between 2019 and 2024, which justifies the fact that it trades at 37 times 2025 earnings.

Tom Wildgoose, head of equities at Sarasin & Partners, particularly likes AO Smith (NYSE: AOS), which makes water heaters. The firm was founded 150 years ago by Charles Smith and his descendants still own just under a fifth of the shares. Wildgoose praises the fact that the company has delivered “strong and steady financial results for many years”. The firm has grown sales at a rate of roughly 5% a year over the past five years, with normalised earnings per share growing by more than two-thirds during the same period and delivering returns on capital employed of more than 20%. The stock trades at a relatively modest rate (for the US market) of 17 times 2026 earnings, with a dividend yield of 1.97%.

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