Three to buy
Associated British Foods
Value is “back in fashion” on the stockmarket and the high street, so now is the time to buy the owner of Primark. The clothing chain has grown through previous crises thanks to consumers’ bargain-hunting; the demise of Debenhams and Topshop will help. The food division – ABF owns brands such as Ryvita and Twinings – provides diversification, while a solid balance sheet should make it one of the first retailers to resume dividend pay-outs. A price/earnings (p/e) ratio of 17.9 is “undemanding”. Buy. 2,146p
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Ergomed
The Mail on Sunday
This Aim-listed business specialises in pharmacovigilance. It works across 60 countries, managing clinical trials, data analysis and monitoring approved drugs once they have been rolled out to the general population. Such work is complex and subject to strict regulation, making it difficult to replicate. The shares have more than doubled so far this year thanks to investors’ growing interest in healthcare. Analysts are pencilling in a 58% jump in profits this year to £14.6m. The outlook for future years is equally auspicious, so buy. 930p
Stagecoach
The Sunday Telegraph
Investors piled aboard this bus operator in response to the vaccine news, causing the shares to double in five weeks. There had been concern over the summer that the sector was moribund, but by October Stagecoach wasn’t even losing money thanks to fixed-price contracts with the likes of TfL. Assuming passenger numbers return to pre-crisis levels by 2023, the current forward p/e ratio is about 6.2 – still a bargain. Buy. 74p
Three to sell
BP
Investors Chronicle
BP’s path to a greener future will be “treacherous” . The company’s low-carbon earnings are a fraction of its more traditional operations and look set to stay that way until at least 2025. The industry-wide stampede into green projects does not bode well for future returns. The outlook for oil prices is underwhelming; 2019 may mark the world’s oil demand peak. Investors seeking dependable payouts should look elsewhere. Sell. 263p
Johnson Matthey
The Sunday Times
The rise of electric vehicles (EV) poses an existential challenge for this maker of catalytic converters. Management has been investing in new hydrogen fuel-cell and battery technologies, but it’s been tough going, with the “new markets” division accounting for just 3% of profits in the six months to October. Competitors such as Belgium’s Umicore woke up to the EV threat sooner. A lack of partnerships with big-name carmakers also fails to inspire confidence. Avoid. 2,332p
Codemasters Group
Interactive Investor
Lockdowns, hit games and high margins have proved a perfect cocktail for video-game stocks this year, sending valuations soaring. Codemasters’ shares have hit record highs on the back of a $974bn takeover bid from Take-Two Interactive. Hedge funds are moving in, hoping for a better offer, but there is no knowing “how long such animal spirits may last” and the share price has a long way to fall. For investors of a certain generation this is all reminiscent of the dotcom-era frenzy around the likes of Eidos. The conservative move
is to sell. 516p
...and the rest
The Daily Telegraph
Hold the Troy Income & Growth Trust: 2021 will be a better year for travel and leisure stocks, but battered balance sheets mean investors will have to wait longer for the dividend picture to brighten (72p). Costco’s unique business model – membership fees and “no-frills warehouses” – keeps it price-competitive with online retailers and generates strong returns on capital. Buy ($387).
The Mail on Sunday
Shares in breathing-kit engineer Avon Rubber have rocketed fortyfold in the past decade. Robust demand from clients in firefighting, the military and police should deliver strong growth next year. There could be more upside to come, so keep a stake (4,105p).
Investors Chronicle
Gloom about the housing outlook for 2021 has gone too far. On a price/earnings (p/e) ratio of nine shares in developer Bellway are reasonably priced for a business with a “sturdy balance sheet” that has resumed dividend payments. Buy (2,823p).
Shares
BlackRock North American Income Trust offers exposure to the dividend-growth potential of American financial, telecoms and software businesses. Yielding 4.9%, the shares look “very appealing” – buy (163p).
The Times
Buy Paragon Banking Group. Furlough cash has kept the buy-to-let sector afloat and the reinstated dividend yields 4% (455p). Gambling group GVC has ambitious plans to grow its US sports betting operation. Buy (1,040p). On 32 times forecast earnings, the recovery is already in the price of pub manager Mitchells & Butlers. Avoid (241p).
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