Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.

Three to buy

Rentokil

(Investors Chronicle) Rentokil has shed non-core divisions to return to its pest-control roots in recent years. This is a defensive business in a structurally growing market: populations worldwide are urbanising, meaning more rat infestations, while workplace hygiene regulations are getting ever stricter. There are big opportunities in both emerging economies and the group’s key North American market, which is ripe for consolidation. On 31 times forecast earnings the shares are not cheap, but still trade on a discount to peers. 471p

Idox

(The Mail on Sunday) This Aim-listed business provides public-sector software that makes interactions with government run more smoothly. It works with over 90% of UK local authorities and also tracks 11.5 million patient records for the NHS. The shares rose as high as 77p in the summer of 2017, but the firm overexpanded and took on too much debt, prompting a share-price plunge. New management is now turning things around and brokers are forecasting surging profits this year and next. “The best is yet to come.” 35p

Kraft Heinz

(Barron’s) The 2015 merger of Kraft and Heinz, in which Warren Buffett is a significant investor, has been a disaster for shareholder value. The group is down about 60% and has suffered double-digit share-price falls for three years running. A dividend cut is widely expected. Yet the stock is so beaten down that on 11.5 times 2020 earnings it offers value. A turnaround strategy, likely to include asset sales to pay down debt, could spark a rerating. For investors willing to accept volatility, the risk-reward ratio looks favourable at this price. $29

Three to sell

Joules

(The Sunday Times) The stars are not aligned for this “cuddly countryside” clothing and homeware retailer. More than half of its sales are made online, but this market segment is becoming increasingly competitive, meaning higher advertising costs and lower profits. The coronavirus outbreak is also a serious risk to the supply chain of a business that sources 90% of its stock in China. Disasters at other clothing firms show how fast “fickle customers” can ditch brands. Sell. 175p

Electrocomponents

(The Sunday Telegraph) This business distributes specialist electronic and industrial products such as socket screws and radio parts. The October-January trading period was weak, with falling orders from Germany’s stagnant car industry one of the culprits. The global electronics cycle may now be bottoming out, but management, which is focused on self-help measures to lift performance, faces a “daunting to-do list”. With the shares up by 15% since October 2018, this looks an opportune moment for investors to take profits. Sell. 706p

Future

(Shares) Sentiment is turning against this magazine publisher. Management shrugged off a report last month by short-seller ShadowFall Research that said the group was overstating organic revenue growth. A similar charge sheet from another short-seller last year suggests that questions about the firm’s acquisition strategy and accounting are starting to carry more weight. “Wait on the sidelines until there is more clarity.” 1,366p

...and the rest

The Daily Telegraph

Management in the Japanese stockmarket is increasingly focused on shareholder value. British investors can gain exposure to the trend via the AVI Japan Opportunity Trust (114p)

Investors Chronicle

Promotional products marketer 4imprint, which supplies “bags, pens and umbrellas adorned with company logos”, is operating in a fragmented market so there is plenty of room to grow (3,300p). Motor finance group S&U is well placed in a growing market and pays an attractive 6% forward dividend yield (2,180p). Slowing markets and a record of negative free cash flow make high-performance foams maker Zotefoams one to sell (415p)

Shares

Two significant US acquisitions increase BAE Systems’ exposure to a key defence market and in-demand technologies. The shares are cheap on a price-earnings ratio of 13. Buy (644p). High-end filters manufacturer Porvair is a “fantastic business” that has just reported record revenue, but on 30 times earnings the rating now looks excessive: time to take profits (760p). Contract wins in the US and Europe show that QinetiQ has become a dynamic defence and security business (373p)

The Times 

Audio-visual equipment supplier Midwich Group has leveraged its specialist knowledge and connections to become a market leader (534p). Law firm Gateley is growing through acquisitions and pays an appealing 4.2% dividend yield. Buy (214p). Paper and packaging play DS Smith is an efficient operator exposed to the growing e-commerce trend. An “exceptionally modest” rating of 10.5 times earnings makes the stock a buy (353p).

Recommended

Five online retail stocks to diversify your portfolio with
Share tips

Five online retail stocks to diversify your portfolio with

Professional investor Tancredi Cordero, founder and CEO of Kuros Associates, selects five of his favourite online retail stocks to buy now.
18 Jan 2021
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
15 Jan 2021
How to invest in Africa as it takes its place in the post-pandemic sun
Emerging markets

How to invest in Africa as it takes its place in the post-pandemic sun

The African Continental Free Trade Agreement has come into force. Favourable demographics, improving governance and a growing technology sector also b…
14 Jan 2021
The days of plenty are coming for insurers – it’s time to buy
Share tips

The days of plenty are coming for insurers – it’s time to buy

Between Covid-19 and tropical storms, last year will leave insurance companies with some hefty payouts. But investors shouldn’t be put off. John Chamb…
8 Jan 2021

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
Leasehold reforms promise the end of a nightmare for many homeowners
Property

Leasehold reforms promise the end of a nightmare for many homeowners

Horror stories about unscrupulous landlords profiting from a legal relic of the feudal era are about to get a happy ending, says Simon Wilson.
16 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021