Three to buy
Pets at Home
Pet food and accessories retailer Pets at Home has outperformed the FTSE 250 index by 13 percentage points since February 2020. The group operates 457 shops across the UK and offers grooming services and veterinary appointments. It has a strong online presence, a new distribution facility opening next year and a “sound” financial position. What’s more, the demand for pet-related products and services is “relatively inelastic”. The stock’s current price does not reflect its long-term growth potential or its ability to navigate weak consumer confidence. 321p
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The Sunday Times
This electric-vehicle (EV) charging business has had a “disastrous time” since it listed at 225p last November; the shares now sit at around 100p. Charging infrastructure has not kept up with the 400,000 EVs already on the road, which is why Pod Point “merits scrutiny as a possible investment”. It is a young company that has yet to generate profits. But it is a leading player in the growing market of at-home charging points. French energy giant EDF has a majority stake in it and it could be the subject of a takeover deal if bigger industry rivals choose to plug into the market. It’s a risky bet, but with the stock down and EV popularity on the up, it’s worth a buy. 100p
SDI group is a collection of firms that manufacture and design equipment used in sectors ranging from healthcare to precision optics. The shares are trading on a price/earnings (p/e) multiple of below 20 for the first time in two years, so this looks like a buying opportunity. SDI is highly profitable, with gross margins of around 65% and returns on equity and investment of 22% to 25%. The board has proved adept at identifying acquisition targets to fuel growth at “conservative” prices. 148p
Two to sell
The £500bn asset manager’s share price has fallen by 40% over the last year, and the stock is also among the 20 most-shorted London-listed shares. The outlook is inauspicious. Analysts have grown “concerned about a seeming lack of strategic direction”. It has struggled with outflows and is falling victim to passive funds as investors shift away from active managers. The shares are trading just below their five-year average but still aren’t compellingly cheap. The group’s upcoming results “could yield some surprises” but “it seems unlikely that any major boon will be revealed”. Shares have been downgraded by analysts and Citi, Credit Suisse and RBC Capital Markets have all issued sell recommendations. “Plausible catalysts for a quick share price recovery” seem unlikely. 154p
A vote for strike action by postal workers spells even further trouble for Royal Mail shareholders. Profits for the 12 months to the end of March are likely to come in at break-even for the core business, far below guidance of over £300m given in May. The guidance, moreover, excluded any impact from strike action. The company has also been hampered by rising costs and lower sales owing to the “structural decline” in letter volumes (down 6% in the three months to June). Avoid the stock. 297p
...and the rest
Drinks-maker AG Barr, whose brands include Irn-Bru, has managed to avoid the London market’s “tidal wave of profit warnings, toasting three profit upgrades in the past 12 months”. Investors are overlooking the solidity of its portfolio and the scope for strategic acquisitions to advance growth. Buy (550p).
The Mail on Sunday
Shares in Cohort, a small, independent UK defence and security-technology group, are currently selling for 529p, which represents a buying opportunity. The company has addressed the problems that caused poor performance at its half year results and its order book is now “stronger than ever”. Cohort will also benefit from the West’s need for “smart, innovative defence companies to keep ahead of the game”.
L&G Global Health & Pharmaceuticals Index Trust offers exposure to the healthcare sector, a “defensive and relatively stable” area of the market. Despite its steady growth and “defensive” traits it trades at a “relatively attractive” rating. Buy (121p).
GlaxoSmithKline’s “punishing identity crisis” has been settled by the “long-awaited demerger” of its consumer healthcare arm, Haleon. Now the rebranded GSK has to prove it can use extra cash to bolster its drug pipeline and drive growth; early signs of progress so far this year are encouraging. Buy (1,783.4p). Streaming giant Netflix lost a million subscribers in the quarter to the end of June as it grappled with cost of living pressures, rising competition, account sharing and the post-pandemic fall in demand. Most of these headwinds won’t abate any time soon, so avoid the stock ($223).
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