Three to buy
Bodycote
Tritax Big Box
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(The Mail on Sunday) Online shopping has surged to new levels during the lockdown and the habit is likely to stick. Warehouse owners are an obvious winner and this real-estate investment trust looks the soundest pick. Tritax specialises in huge warehouses, recently announcing a new development that will be the size of 30 football pitches for an unnamed client widely thought to be Amazon. This “ringing endorsement” adds to its roster of well-known customers, which also includes the likes of Tesco and Matalan. A 96% rent collection rate in the first quarter is a testament to its resilience in difficult times. A decent dividend will also tempt income seekers. 143p
Lam Research
(Shares) This Nasdaq-listed technology supplier stands to gain from the shift to digital. Lam makes specialist equipment that helps the likes of Intel and Toshiba to make faster and cheaper microchips, a key growth area thanks to growing demand for data storage and the development of new areas such as in-car electronics. The shares trade on a 26% discount to the average price/earnings multiple in the tech sector and also pay a 1.5% dividend. Buy. $312
Three to sell
AA
(Investors Chronicle) Stockmarkets are in the grip of a “dash for trash”, with investors eagerly buying up anything that looks cheap. Shares in this vehicle recovery business are up by 50% since April. Yet the AA is starting to look like a corporate zombie, “stumbling forward in search of its next debt fix”. High debt would be more manageable if the underlying business were robust, but the solid brand is not enough to save the membership model from mounting challenges. It is time to “turn on the hazard lights”. Sell. 27p
Alumasc
(Money Observer) This premium building materials supplier has made “herculean” efforts to turn itself around but still refuses to grow. Management has spent the best part of the last decade disposing of “humdrum” engineering and construction operations to focus on more lucrative areas. Yet high returns on capital have stubbornly refused to turn into expansion. A sales push in the US has also failed to deliver real gains. With no obvious way out of the impasse even a patient investor needs to recognise when their money could be put to better use elsewhere. Sell. 77p
Hammerson
(The Sunday Times) Nervous investors are wondering whether the owner of Birmingham’s Bullring could go the way of Intu. Hammerson is set to breach debt covenants unless it can sell assets. But this is hardly an auspicious time to sell: the value of its flagship properties fell by a fifth last year and Covid-19 will have taken an even bigger toll. Just 37% of rent was paid on the March quarter day. Around 12.5% of shares are being sold short: hedge funds smell blood. Sell. 82p
...and the rest
The Daily Telegraph
“Dull and stodgy” utilities such as SSE and National Grid are reassuring holdings in a time of economic uncertainty. A growing pile of unpaid bills is a challenge, but income investors should “stay plugged in”. Hold (1,391p; 973p).
Investors Chronicle
High-performance polymer maker Victrex is worryingly dependent on shaky end markets in aerospace, cars, and oil and gas. It has a strong balance sheet, but the rich valuation makes it best to steer clear (2,042p). Rent collection has remained strong at self-storage play Safestore, making it that rarest of things: “a pandemic-resilient real-estate” share. Buy (740p). Trading at clothing business Joules has taken a hit but a strong e-commerce operation and growing brand awareness are auspicious signs – buy (112p).
Shares
A big natural gas find has boosted Trinidad oil and gas operator Touchstone Exploration and the group is heading for a “step change” in output. Buy (52p). News of strong trading at Mr Kipling cakes-maker Premier Foods in the year to 28 March comes on the heels of a “transformational” pensions deal, so keep buying (64p). Shares in Microsoft are up by 17.5% since early April, demonstrating the appeal of a business that has been able to keep trading through the pandemic and looks likely to keep up the momentum. Buy ($200).
The Times
Ted Baker has been through two tumultuous years, but strong online sales suggest that the brand is “over the worst”. Hold (82p). Shares in British Gas-owner Centrica trade at 10% of their peak. Yet the business is losing customers and the dividend outlook is unclear. Avoid (43p). Warner Music Group is raking in cash from the streaming boom and has growing bargaining power with Spotify – long-term buy ($32).
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