Share tips of the week – 2 December
MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
Five to buy
Compressor and pump maker Ingersoll Rand (NYSE: IR) looks a solid long-term bet “despite the ups and downs of the broader economy”. Its operations are “well targeted, well executed and likely to deliver above-normal returns”. Compressors “don’t sound that sexy” but they are essential to manufacturing facilities worldwide.
The mid-cap has a market value of $22bn; sales are set to reach $5.81bn this year, 13% higher than in 2021, and the balance sheet is “in good shape”. The company should generate $1bn in free cash flow every year and will use it to make strategic acquisitions. $53
iShares UK Dividend UCITS ETF
Inflation is eating away at investors’ cash. However, the “danger” with picking individual stocks for income is that “high yields are usually indicative of some underlying problem”. The iShares UK Dividend ETF (LSE: IUKD) hunts for high yields and offers a diversified portfolio of stocks, ensuring your income will be protected even if a couple of companies cut their dividend.
The fund tracks an index of 50 stocks with “leading” dividend yields. The top three holdings are miners Rio Tinto and Anglo American, and housebuilder Persimmon.
The trailing yield on the fund is 6.5%, double the FTSE 100’s 3.3% and fees are low at 0.4%. Investors after a place to “park their money until markets settle down” should buy in. 698p
Pets at Home
Retailer Pets at Home (LSE: PETS) was a “pandemic-era winner”. But now it has been hurt by higher costs and a slowdown in sales growth following the Covid-19-induced pet spending boom. Shares are priced at just under 15 times forward earnings, down from 30 in late 2020. The company has been investing in integrating its website and opening a new distribution centre, which will weigh on profits this year.
But “the rationale for spending on its digital operations is sound”: the idea is to squeeze more sales out of each customer. Freight costs have decreased; management estimates they will fall to pre-pandemic levels in a few months.
How consumers respond to the rising cost of living “is a bigger uncertainty” but the weak valuation “looks too harsh in light of the medium-term growth opportunities”. 271p
The Sunday Times
Lay-offs are widespread in Silicon Valley, but “the average company is still pushing a digital agenda”. Despite the economic slowdown firms are investing in technology, which makes SThree (LSE: STEM) a good bet. The recruitment firm specialises in science, technology, engineering and mathematics jobs.
The shares have fallen owing to negative sentiment caused by inflation and recession; the company has lost almost a third of its value over the last year. The shares have fallen from a peak of £6 last autumn to around £4 now.
But science and tech are both fast-growing sectors, and skills shortages are “at record levels”. The company boasts net cash of £57m. This is a buying opportunity. 413p
Global consumer-goods company Unilever (LSE: ULVR) will have a new boss by the start of 2024; current CEO Alan Jope has been with the group for 35 years. Jope has “failed to deliver strong earnings” but the latest trading update “suggests that Unilever continues to enjoy a significant competitive advantage over rivals”.
It has passed higher costs on to customers, prompting it to raise sales guidance for the full year. It also expects the underlying operating margin to rise over the next two years as a €600m cost-cutting saving programme pays off. The group’s“strong fundamentals” make it a buy. 4,117p.
...and the rest
International Distributions Services (LSE: IDS), Royal Mail’s parent company, has been struggling with weak parcel volumes, strike action and faltering productivity, leading to a “hefty operating loss”. Sell (238p).
Shares in online electrical-goods group AO World (LSE: AO) have lost half their value in a year, sales have collapsed by nearly a fifth, and pre-tax losses have risen significantly. Sell (61p).
The Bank of Ireland (LSE: BIRG) has spent the last ten years rebuilding itself after the financial crisis. The current discount to tangible net assets seems “a little harsh”, as the dividend is set to grow over the next two years. Buy (€7.33).
Drug developer Indivior (LSE: INDV) is trading at 15.8 times 2023 earnings, “which looks too cheap against the growth potential”. The gloomy economic outlook should not affect the group too badly because its lead drug, Sublocade, is the only long-acting treatment for severe opioid disorder. Hold for now (1,708p).
Half-year results from self-storage specialist Big Yellow (LSE: BYG) showed that the company has the “financial standing to navigate the current cost-of-living crisis and wider economic slowdown”. The stock should deliver over the longer term. Hold (1,119p).
Premier Foods (LSE: PFD) is profiting from “more people economising by shunning restaurants in favour of their own kitchens”, and should keep doing so. Buy (107p).
Utilities group Telecom Plus (LSE: TEP), offering services ranging from gas to insurance, has been given its “best chance yet of competing with the ‘Goliaths’” thanks to soaring energy prices. Buy (2,505p).