Three to buy
Focusrite
This audio specialist has been enjoying a lockdown boom. A world leader in the hardware and software used to record, mix and edit sound, Focusrite used to sell mainly to the music industry. Yet emerging demand from podcasting, game streaming and online education means that there is more opportunity than ever in this sector. The group enjoys large gross margins, particularly in its software operations. A price/earnings ratio of 26 is justified by auspicious long-term growth prospects. 687p
MoneyWeek
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CareTech Holdings
The Mail on Sunday
Founded in 1993, Caretech today runs more than 500 social-care facilities, looking after children and young adults with complex conditions ranging from autism to anorexia. Staff-to-patient ratios are high and many employees have been with the business for years; indeed, a large number own the shares. Activity remained resilient despite the disruption of lockdown and the company last month hiked the interim dividend by 7%. The payout has risen every year since 2007. With a 5% market share, the business also has room to grow. 427p
Whitbread
The Sunday Times
Sales at the owner of Premier Inn and Beefeater plunged by 99% during the first seven weeks of lockdown, prompting a £1bn rights issue. The funds have provided crucial balance-sheet ballast, yet the money will also be used for “future growth and investment”. The travails of rival Travelodge suggest that there will be plenty of chances to poach assets in the coming months, while there is scope for Whitbread to grow its market share. 2,290p
Three to sell
Boohoo Group
Motley Fool UK
Sales at this online fashion retailer surged by 45% in the three months to June as locked-down Britons resorted to online retail therapy. Yet the shares “fell off a cliff” this month after allegations about the exploitation of workers at a supplier’s factories. Companies have ridden out such scandals before, but redemption is trickier in the age of environmental, social and governance (ESG) investing: Standard Life Aberdeen has decided to dump the shares. Stay “well clear”. 256p
Royal Mail
Investors Chronicle
Freed from the yoke of the public sector, investors who bought into Royal Mail’s 2013 flotation at 330p hoped that it would prove a growth story. That has not happened, with the shares falling more than 40% since. The group remains exposed to the contracting letter market and has been slow to expand its parcel operation. Staff account for almost 60% of the firm’s £10.6bn costs, but management’s efficiency drives have drawn fierce resistance from unions. On a price/book value of 0.4 the shares are certainly cheap, but we spy a “value trap”. Sell. 184p
Nikola Corporation
Barron’s
Investors are keen to buy early into “truckdom’s equivalent of Tesla”. The trouble is working out which firm that is. This Arizona-based business is betting that hydrogen fuel-cells offer the way towards a future of zero-emission hauliers. The first trucks won’t be ready until 2023, and without any sales or earnings it is difficult to value the shares. Despite recent falls the shares do not appear to offer much “margin of safety” at the current price. $38
...and the rest
The Daily Telegraph
Surging demand for home deliveries has given Tesco a key advantage over the German discounters, which lack its “online scale”. Add in an improving image among budget-conscious customers and the shares are a buy (221p).
Investors Chronicle
These are tough times for housebuilders, but the pullback at Redrow looks overdone. Trading on a 12% discount to book value the shares offer value (460p). Sage is the biggest technology company on the London market. Highly cash-generative and with return on capital employed hitting an impressive 20.5% in the first half, this looks a long-term winner (712p). Speciality chemicals supplier Elementis is exposed to adverse developments in energy and vehicle end markets.
Sell (71p).
The Mail on Sunday
Shares in drug firm Synairgen have shot up from 6p to more than £2 this year, thanks to interest in its SNGOO1 drug as a possible treatment for coronavirus after promising trials. Given the development risks it could be time to take profits on at least some of the shares (204p).
Shares
The global microchip industry is in “rude health”, so keep buying Dutch semiconductor parts supplier ASML (€343). A dividend increase at Begbies Traynor confirms the insolvency firm’s role as a portfolio hedge for tough times. Keep buying (99p).
The Times
Robinsons squash owner Britvic has not escaped a Covid-19 sales hit, but the shares should rally as the recovery takes hold (798p). Property investor and developer St. Modwen Properties stands to gain from renewed demand for warehouses (329p).
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