Three to buy
AB Dynamics
The Sunday Times
This automotive-testing business is responsible for producing “robots that check the safety of almost all of the world’s major auto brands’ vehicles”. The number of tests a new car model faces before certification is rising quickly, from 84 in 2016 to 420 by next year, making this a fast-growing area. Listed on Aim, the firm’s shares have been caught up in the market “car crash” and have fallen by 30% in a year. Yet given the structural growth in AB’s market, the shares look “worthy of the ride”. 1,310p
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Anglo American
The Telegraph
Shares in this FTSE 100 mining behemoth are “dirt cheap” on a price/earnings (p/e) ratio of five and yielding more than 7%. Pessimism surrounding the commodities outlook and operational problems in the first half have seen the shares drop 30% in four months, but those difficulties now appear to be priced in. An exit from thermal coal and focus on commodities such as copper sets Anglo up to tap into structural demand for the commodities needed to achieve net-zero. “Investors who can look beyond short-term uncertainty can expect to generate good returns.” 2,843p
Phoenix Group
The Mail on Sunday
Phoenix is a blue-chip savings and pensions business and a rare example of a firm “expressing confidence about the future”. Rather than spending money on attracting new business like its peers, the Standard Life owner focuses on acquiring life assurers that are closed to new members. The model generates “mountains of cash”, with plenty left over to fund generous dividends. The yield of more than 7.5% is especially welcome in these inflationary times. 661p
Three to sell
AO World
Investors’ Chronicle
The online white-goods seller is struggling to find its footing in a post-Covid world. The group reported a £37m pre-tax loss in the 12 months to 31 March, compared with a £20m profit the year before. Supply-chain disruption and soaring shipping and freight costs have hurt performance. Management seems to have “overestimated the duration of the surge in consumer spending brought about by the lockdowns”. The shares enjoyed a brief relief rally as the results were “not quite as dismal as expected” but there are few reasons to think the shares will go much higher from here. Sell. 48p
i3 Energy
Shares
Shares in this Canadian oil and gas business have soared by 167% since July last year as global energy shortages massively increase demand for its products. Rising output in its Canadian operations also allowed it to start paying a dividend in March this year. The strong showing vindicates a business model focused on buying up “low-cost conventional assets”. However, weakening commodity prices mean that “taking some profit might be sensible” now. 29p
Royal Mail
Motley Fool
Royal Mail’s shares have halved since the start of January. Upcoming strike action by the Communication Workers Union is the most pressing problem, leaving management to choose between a big revenue cut from stoppages or acceding to union demands that will inflate the wage bill. Debt was “around the £900m mark” as of March, and with borrowing costs rising that burden could set back modernisation plans. Avoid. 260p
...and the rest
Shares
The cosmetics market is often a good place to be during downturns, but an audit probe and “massive profit warning” at Revolution Beauty has hit the share price. With no “earnings visibility” it is “time to cut our losses” (29p).
The Telegraph
Hard times will push more consumers to shop around for bargains, which should provide a steady tailwind for price-comparison site Moneysupermarket.com. Buy (217p).
Investors’ Chronicle
Insurers are having a “rotten year”, but the pessimism presents an opportunity to snap up shares in UK motor insurance-focused Admiral. The firm is winning new customers and boasts a strong dividend record. Buy (2,225p). “The ratio of university students to beds provided by universities is 3:1”, creating a lucrative opportunity for landlords such as Empiric Student Property. Buy (98p).
The Mail on Sunday
Flavour and fragrance ingredients business Treatt has delivered a “hefty profits warning” on higher costs and adverse currency movements. However the group’s focus on natural flavourings, which are increasingly sought after by consumers, should turn it into a long-term winner. “Brave investors” should buy (569p).
The Times
Construction group Balfour Beatty’s pivot towards “long-term publicly-funded development work” is proving a well-timed defensive move as the economy slows. On a forward price/earnings (p/e)ratio of less than ten the shares are a buy (321p).
