Share tips of the week – 22 July

Six to buy

Associated British Foods

The Sunday Times

Shares in Primark’s owner Associated British Foods have fallen far below pre-pandemic levels owing to rising inflation and shaky consumer confidence. Higher wages and energy prices are increasing Primark’s operating costs, and although it will raise prices in the autumn, margins will suffer this summer. It’s a similar story at the food business. However, “the sell-off looks overblown”. Primark is “an obvious beneficiary” of shoppers looking for more affordable alternatives, and the “demise of weaker rivals” will also increase customer numbers. Steady demand for food should offset volatility in the retail sector. The stock looks “excellent value” on a 2022 price/earnings (p/e) ratio of 11. 1,620p

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SEE ALSO: It might confuse the market, but Associated British Foods is a buy

Auction Technology

Investors’ Chronicle

Auction Technology might be one of the few companies “happy about inflation”. The group’s online platform connects auction houses with potential bidders. The company started out as a magazine before creating a live bidding platform for antiques and launching a website. Over the last ten years it has expanded into new products and sectors, and now boasts bidders from over 160 countries and 3,800 auction houses. Its scale provides a “good economic moat” and makes it appealing to new clients. The company has also benefited from the shift to online auctions throughout the pandemic. 893p

Cranswick

The Daily Telegraph

Market turmoil shouldn’t deter investors from buying shares in companies with “the financial strength to outlast, and even capitalise on, an uncertain economic outlook”. Enter food producer Cranswick. It has an “extremely solid” financial position. Sales and net profits have risen at a double-digit rate on an annualised basis over the last five years. Only 8% of last year’s sales were from international markets, so there is ample scope for long-term growth. The shares have slipped by 25% in 12 months. It’s time to buy the dip. 3,068p

Forterra

The Mail on Sunday

Britain uses 2.4 billion bricks every year. Forterra is one of the UK’s biggest brickmakers, and the decline in its share price seems “unjustified”. The company sells all of the 500 million bricks it makes every year and its customers include large builders’ merchants, which are “financially robust”. It is a highly cash-generative company, which helps explain the attractive and growing dividend. It has also passed on rising energy and labour costs to customers, facilitating an expansion in capacity. 264p

McDonald’s

Shares

Shares in the fast-food giant might not be as exciting as “younger, faster-growing” rivals, but it has consistently outpaced the market and remained a reliable dividend grower. Its affordable products have filled the gap in the market left by restaurants that succumbed during the pandemic. It has 38,000 outlets worldwide, which it has refitted in recent years. McDonald’s is expected to enjoy mid-to-high single-digit earnings growth next year, which will become “increasingly attractive to investors looking for stability”. $253

Morgan Sindall

The Times

Construction and regeneration group Morgan Sindall’s recent announcement of new three-year targets might have seemed odd given inflation’s threat to profitability. But the company plans to win a greater share of repeat and longer contracts. Around 60% of its work is for the public sector, which could help shield it from a slowdown in commercial construction. It has a strong balance sheet and has consistently operated with a net cash position, giving it a good buffer should the economy slow further. The shares looks cheap. 1,878p

...and the rest

Investors’ Chronicle

Supermarket Income Reit owns, or co-owns, 69 supermarkets across the country. Its clients offer a long-term, stable rent roll and it has continued to increase its dividends. Buy (123p).

Shares

Vehicle-hire and accident-management group Redde Northgate has “come a long way in the past few years”. The market has overlooked just how well it could keep doing, making now a great time to buy (336p). Watches of Switzerland should “buck the wider retail doom and gloom” thanks to its luxury products and clientele who are largely unaffected by the cost-of-living crisis. Buy (759p).

The Daily Telegraph

The FTSE Aim All-Share index has fallen by a third over the last year, which has hurt the share prices of aggregates specialist Breedon, fund manager Impax Asset Management and eyewear producer Inspecs. But they are all solid companies and investors should buy the dips (64p, 550p, 234p). Cadence Design Systems makes software that allows customers to design consumer chips and counts the world’s biggest chipmakers as clients. The value of its software is “obvious”, yet it has few competitors. Buy ($157).

The Times

Investment manager Ashmore Group, which specialises in emerging markets, has been hit by volatile markets and “rising US bond yields”. Further earnings downgrades look possible. Avoid (201p). Investors are “preparing for the roof to fall in” at builders’ merchants firm Grafton Group, whose brands include Selco. But the company’s “large pile of cash, improved margins and… geographical diversification” make it a buy (786p).