Share tips of the week, 25 June

Three to buy

Lennar

Barron’s 

Lennar is one of America’s top homebuilders, and it looks poised to benefit from the country’s “severe shortage” of housing. Lennar reported strong quarterly results last week, showing that demand remains robust. The company also operates a house-rental business and will benefit from the increase in people leaving apartments for more spacious homes. On a price/earnings (p/e) ratio of just eight, this is a “multiyear opportunity”. $98

Sage 

The Daily Telegraph

Renowned fund manager Terry Smith has sold his fund’s stake in this business-software group, but it has “a bright future”. The firm is transitioning from selling its software as a one-time purchase to providing it as a service hosted in the cloud. The shift “requires investment”, but after a year or two investors “will have recouped much of the shortfall” and be left with a “smoother, more reliable long-term revenue stream”. A dividend yield of almost 3% will pay them to wait. 677p 

Palace Capital 

The Mail On Sunday

Commercial-property companies were “shunned” when the pandemic first hit as investors worried that tenants would be unable to pay their rent. But the fall in Palace Capital’s shares looked “unwarranted” and there should be plenty of gains ahead. The company is run by “experienced hands”. It collected 95% of the rents owed in the year to March 2021, and increased its final dividend by 20% to 3p. It says shareholders will receive at least 12p for this financial year. This “reflects confidence”. As the economy recovers so will the stock. 260p

Three to sell

WHSmith

Investors’ Chronicle 

WHSmith’s shares have bounced amid investors’ growing confidence thanks to the successful vaccine rollout. But the stock’s rise is also based on “extremely forgiving” earnings estimates focused on “past glories”. The current valuation “fails to take proper account” of the “huge” uncertainty surrounding sales’ recovery over the next few months, which is why investors “would be better off getting out now”. 1,755p 

Farfetch

Morningstar 

Farfetch is an online platform that sells personal luxury-goods. The firm connects luxury buyers and sellers without exposing itself to unsold inventory risk. But it is a small company, with only a 3% share of the online luxury-goods segment, and it reaches less than 1% of the luxury-buying population. Analysts believe the online luxury sector will be dominated by a small number of strong global players, and though Farfetch could become one of them, it is still too young and risky for investors to take that bet now. Avoid. $49.67

Naked Brand 

Investor Place 

“It was a given” that Naked Brand, an online apparel and swimwear business, “would go belly up” until Reddit day traders “changed the equation”. Posts encouraged users to buy NAKD stock, leading to a massive bounce. The firm is pursuing a digital transformation that involves selling its flagship brand and “making hay while the sun shines”. But the company has vastly increased its shares in a short amount of time, from 29.4 million after a $50m offering in January to 476 million. “That kind of dilution is not something stockholders will like.” Longer-term, investors should avoid the group, despite what Reddit traders say. $0.63 

...and the rest

The Daily Telegraph 

Insurer Admiral boasts an “entrepreneurial culture”, consistent profits and a “high but sustainable” yield of 3.7%. Buy (3,201p). Patents specialist RWS is a market leader in helping businesses protect their intellectual property (IP). It is “well managed”, and the economy looks “sure to rely ever more on IP”. Buy (557p). 

Shares

Industrial-equipment rental group Ashtead doesn’t look cheap and offers a “modest” yield of 1%. But the firm’s dividend-growth track record is “exceptional”; it maintained its progressive dividend policy throughout the pandemic. Buy (4,985p). Fevertree Drinks is also a buy, having increased its dividend by 38% over the last six years (2,558p). 

Investors’ Chronicle 

Iron castings and machining specialist Castings was hit by a slump in demand throughout the pandemic and although it is now back to full production, there is still considerable uncertainty ahead. The global semiconductor shortage, moreover, does not bode well for the group, which is heavily reliant on the automotive industry. Hold (382p). 

Motley Fool

Office furniture maker Steelcase was hurt by the pandemic as people worked from home, and this market “will take a lot longer to bounce back” than others. Avoid ($14.24). New bitcoin investment vehicle Osprey Bitcoin Trust offers a low-cost way to gain exposure to bitcoin. But it is trading at a “big premium” to its underlying assets, and with rival and much larger alternative Grayscale Bitcoin Trust on a 14% discount to net asset value (NAV), it is best avoided for now ($13.12).