Share tips of the week

Five to buy

Next

(Investors’ Chronicle) Next’s “extensive” online presence and the diversity of its offerings meant it could respond to changing preferences and shopping trends when consumers moved to working from home as Covid-19 struck. The “FTSE 100 giant” has gained “great-survivor” status amid a rapidly changing backdrop that has seen many retail giants go under. Online sales in the year to the end of January 2021 were especially strong: in the second half, the £368m lost from retail stores was mitigated by online sales of £364m. Overall annual revenue slipped by 18% to £3.3bn and the group has yet to resume its dividend, but its digital presence and varied merchandise are “powerful weapons” for the future. 7,920p

Medica

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(Shares) Teleradiology specialist Medica’s new management has “reinvigorated” the business and laid out a clear plan to diversify revenues. The core division is set to benefit from the strong rebound in elective procedures after Covid-19. Analysts predict that Medica could grow earnings at an annual rate of 22% per year to 2025 and its elective business is expected to grow by 14% a year to 2025. But the auspicious forecasts are not reflected in the stock, which is on a 25% discount to peers. Medica is “the largest player in the outsourced market”, offering scale and efficiency “that rivals find hard to match”. That makes it the first port of call for overwhelmed NHS services. 150p

II-VI

(Barron’s) Laser-industry leader II-VI’s share price dropped from a high of $100 to the mid-$60s after a bidding war forced it to pay $7bn in cash and stock for optical component maker Coherent. “That was an overreaction.” The stock has rebounded to $76 and should keep rising, eclipsing the $100 mark. Despite the recent turbulence, industry consolidation among laser companies is turning the main players into more diversified businesses that will be better able to deal with market turmoil. II-VI’s latest acquisition gives it greater exposure to markets such as life sciences, semiconductor equipment and laser welding. Buy on this dip. $76.21

Lloyds Banking Group

(Evening Standard) Bank shares’ recovery “has been one of the less widely told stories of recent months”. But Lloyds’s stock has rallied from 27p in October to 43p and it should have further to go. Following the lockdowns people “have more savings… than at any time in recent history”. Morgan Stanley estimates that we have amassed 7.7% of the country’s GDP in excess savings. Having been “cooped up and lonely” for the past year, even the frugal among us are set to splash out. Garden centres, restaurants and pubs will benefit from people getting together again. “All that spending should lead to more confidence, growth and borrowing. Bread and butter for banking profits.” 43p

Admiral

(The Motley Fool) Admiral is one of the country’s best and most efficient insurance companies. This “household name” processes customer queries more cheaply than its rivals, which gives it a “considerable competitive advantage”. Although the UK car insurance market is “viciously competitive”, Admiral has managed to navigate it successfully so far. It also offers pet, travel and home insurance. The company’s operations in the US and Europe have been loss-making over the past few years, but they began contributing to the group’s bottom line last year, and further growth is being pencilled in. It all adds up to an auspicious outlook for further profit and dividend growth. The shares are on a forward yield of 4%. 3,202p

...and the rest

The Times

Software developer Softcat helps companies that need to upgrade computers and software. It has benefited from the rise in homeworking and a surge in public-sector contracts, but it still only holds 3% of a “fragmented UK market”. It “would take a bullish investor to pile in now”. Hold (1,941p).

The Daily Telegraph

Tesco makes a profit margin of 5% before interest and tax from in-store sales, but before Covid-19 struck it was making a loss of 4% of the value of every online order. But the group has had a “good pandemic”: orders per van in 2020 were up by 21% from the previous year and the value of orders rose too. Hold for now (234p).

Investors’ Chronicle

Almost all of Gym Group’s current members say they will return as soon as possible, so the company “could thrive” now that restrictions are being lifted. Net debt jumped by a fifth last year to £352m, but the group’s “sprawling network of gyms” is still growing and management expects to break even as soon as the gyms reopen. Hold (246p).

Shares

Bloomsbury Publishing posted a “bullish” trading update at the end of March, announcing that it expected annual sales and profits to be “significantly ahead” of market expectations this year. That was largely due to exceptional sales throughout February, the last month of the firm’s financial year, as “the reading boom” continued. Buy (298p). Micron Technology is among the world leaders in memory chips, which are crucial in a world moving swiftly to cloud-computing technology. The shares are up by 16% in just over two months and there is “further 2021 upside to be had”. Buy ($93.75).