Share tips of the week – 19 August

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.

Three to buy

British American Tobacco

Interactive Investor

A £957m impairment from exiting Russia has hit market sentiment towards BAT, but investors are overlooking plenty of good news. While global tobacco sales are stagnating, the group’s vaping operations are enjoying vigorous sales growth, leaving BAT well positioned for the future. A strong dollar is also helpful for a business that derives 76% of its profits from the US. The stock looks a solid pick for the “current tough times”, especially given the 6.5% dividend yield. 3,230p

Learning Technologies

Shares

This online staff-training business has fallen victim to the tech sell-off, despite being “highly profitable and cash-generative”. The firm works with corporate and public clients to help them burnish their skills, giving it a front-row seat in a market set to be worth $400bn by 2026. More than two-thirds of revenue last year came from the US, the top digital-learning market. With operating margins approaching 20%, analysts think the shares could be poised to re-rate over the next year. 131p

Spirent Communications

The Mail on Sunday

Spirent works with the likes of Apple, BT and Vodafone to test new telecommunications technology. The complexity of the 5G mobile network roll-out means there will be healthy demand for its services: the global number of 5G connections is expected to climb from 500 million in 2021 to 1.3 billion by the end of this year. The group also specialises in “location awareness”, a cutting-edge area that is needed for driverless cars and military drones. Spirent boasts a “strong balance sheet” and the shares yield around 2%. 276p

Three to sell

Deliveroo

Motley Fool

This online food-deliverer is suffering a post-Covid-19 “hangover”, with the shares tumbling more than 50% since the start of the year. But the fall is still no buying opportunity. The cost-of-living crisis is pushing up staff costs and will prompt customers to “cut back on takeaways”. The group’s “inability to turn a profit” is also notable. Business boomed in 2021, but it still posted pre-tax losses of almost £300m. As inflation is only likely to worsen in the second half of 2022, this is one to avoid. 95p

IWG

The Times

This office operator, which owns the Regus and Spaces brands, had barely recovered from the pandemic before being hit by the latest economic storm. The group recorded an operating loss of £36m in the first half of the year as rising staffing and heating costs, along with Asian lockdowns, weighed on performance. Now talk of “an impending recession” could see companies opt to “take less space and cut back on optional extras such as catering”. Poor results have rattled investors and mean earnings downgrades from analysts are likely. Avoid. 172p

Petrofac

Investors’ Chronicle

Soaring global demand for energy has not helped Petrofac. Sales fell by an annual 40% at the engineering and construction division in the six months to 30 June due to a “weaker oil and gas project pipeline”. Management thinks the industry is due a “multi-year upcycle” of rising investment. Yet the firm is unlikely to return to profit until next year, and will “remain far behind its 2016-2019 profit levels”. The dividend is still suspended. Sell. 117p

...and the rest

Shares

This year’s sell-off offers an entry point into small-cap British companies. The Montanaro UK Smaller Companies Investment Trust offers a “ready-made portfolio of high-quality small fry”. Judicious stock selection is more important at this end of the market owing to the presence of many illiquid or loss-making firms. The trust has a “long track record of outperforming peers” and offers a yield of 5.1% (116p).

The Daily Telegraph

IBM is no longer a technology “dinosaur” thanks to its bets on quantum computing and the cloud. It is a leading filer of corporate patents. On 14 times forecast earnings and yielding 5%, the shares are not priced for the group’s enhanced growth prospects. Buy ($129). Rising interest rates will put pressure on property prices, but a structural shortage of housing means builder Barratt Developments enjoys auspicious long-term prospects. On six times forecast earnings the market is being unduly gloomy – buy (487p).

Investors’ Chronicle

Buy-to-let mortgage specialist Paragon Bank is “well-capitalised” and has a “history of high returns”. The market may be rocky, but undervalued shares, dividends and buybacks could “herald double-digit total shareholder returns” for patient investors (554p).

The Times

Tumbling markets are complicating asset manager Abrdn’s efforts to restructure its cost base. Six years of net outflows suggest that its problems go “beyond the recent market downturn”. On 20 times forward earnings the shares are unduly pricy. Avoid (162p).

Recommended

Should I buy an annuity now? Annuity rates reach 14-year high
Pensions

Should I buy an annuity now? Annuity rates reach 14-year high

Retirees can now make their original pension pot back in 15 years, down from 22 years. We look at whether now is a good time to buy an annuity.
5 Oct 2022
The Burberry share price looks like a good bet
Trading

The Burberry share price looks like a good bet

The Burberry share price could be on the verge of a major upswing as the firm’s profits return to growth.
5 Oct 2022
What’s happened to Credit Suisse stock?
Bank stocks

What’s happened to Credit Suisse stock?

Credit Suisse stock has slumped on rumours that the bank is in trouble. Is there any truth in this speculation?
5 Oct 2022
Markets may have bounced, but this is not the end of the bear market
Stockmarkets

Markets may have bounced, but this is not the end of the bear market

Stocks are back on the rise, commodities and precious metals prices are up – even the pound has rebounded. But none of this is typical of bull markets…
5 Oct 2022

Most Popular

Should you take a 25% tax-free pension lump sum in instalments?
Pensions

Should you take a 25% tax-free pension lump sum in instalments?

Taking out a 25% tax-free lump sum sounds appealing but it might not be the best way to manage your pension
30 Sep 2022
Mortgage early repayment charges: are they worth the cost?
Mortgages

Mortgage early repayment charges: are they worth the cost?

With interest rates set to rise further in the months ahead, is it worth swallowing early repayment charges to refinance your mortgage today?
4 Oct 2022
Why the Bank of England intervened in the bond market
Government bonds

Why the Bank of England intervened in the bond market

A sudden crisis for pension funds exposed to rapidly rising bond yields meant the Bank of England had to act. Cris Sholto Heaton looks at the lessons …
30 Sep 2022