Share tips of the week – 14 October
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
The Mail on Sunday
Tesco is “dealing with a long shopping list of problems”, including the rising cost of food, evident in smaller basket sizes. The company has to adapt to changing circumstances “without losing share to discounters such as Aldi and Lidl”, which might affect margins and profits. However, the group increased its interim dividend by 20% and is returning cash to shareholders via a buyback. The company has “plenty of cash, good relationships with suppliers and... real expertise in offering value to customers”. That makes the shares a buy for those willing to sit through the turbulence. 205p
Industrial manufacturer Crestchic’s shares have rallied by 40% over the past three months but they still trade on just 9.9 times analysts’ latest earnings-per-share forecast for 2023. The company sold off its Australian drilling tools division in March, which left it to focus on its load banks business . This equipment is used to test power systems in sectors operating everything from data centres to oil, gas and mining operations. Data centres are a particularly lucrative sector thanks to “exponential growth” in cloud computing. Crestchic looks well positioned to take advantage of demand for these in the US. 270p
The Sunday Times
FTSE 100 chemicals giant Croda sold its industrial chemicals operations for $1bn last year, and now focuses mainly on life sciences and beauty products. The company benefited from Covid-19 because it provided the lipid nanoparticles necessary for Pfizer’s vaccine. But the company “has purposes beyond the pandemic”. Its technology could be used in mRNA therapies, which are becoming more popular, and its beauty and skincare businesses provide scope for global growth. 6,748p
Two to sell
Funeral provider Dignity announced heavy losses for the half-year to 1 July, along with a “chunky impairment charge” of £63m owing to “slower funeral market-share growth” and an increase in cremations over burials. The company, which runs 750 locations across the UK, is also struggling with recruitment. It has suffered “severe” staff shortages since January and currently has over 400 vacancies. The downturn in revenue was unsurprising given the lower death rate compared with the same period the year before. Deaths were down by 6% to 319,000. The company’s new pricing model was meant to make it more competitive but it has yet to deliver. It’s set to adjust prices again in October, but based on its results “the plan isn’t working” and the ongoing labour shortage remains a concern. Sell. 353p
Biotech Vaxart develops oral vaccines and is working on one for Covid-19, which “would be a big deal” – many people would prefer to avoid a needle. Still, investors worry that demand for these products will slide; 68% of the world’s population has received at least one dose of the vaccine. The booster market could be an opportunity but Vaxart will have to prove its candidate is safe and effective, and “it still has a long road ahead”. There are other biotech firms with more solid investment cases. Avoid. $1.93
...and the rest
Banks are not immune to turbulent markets but larger ones, such as Lloyds Banking Group, have the “structural advantage” to withstand it. The shares look good value, too. Buy (42p). Google owner Alphabet’s valuation does not appear to reflect its “strong market position”; it is both gaining ground in advertising and continuing to grow its cloud business. Buy ($98.64).
The Mail on Sunday
Greggs should keep benefiting from its “more affordable” image as consumers save money. The stock is trading on a price/earnings (p/e) ratio of 15, and it yields over 3%. “Historically the ratio is over 17 times. Worth a nibble” (1,798p).
Shares in defence contractor BAE Systems have jumped by 45% since February, when Russia invaded Ukraine. Demand for its technology is likely to increase, and shares are modestly priced. Buy (834p). Price-comparison site Moneysupermarket’s half-year results were positive, although the government’s takeover of the energy market hampered performance. The company has acquired two new businesses and there is further scope to “consolidate its market leadership”. Buy (193p).
Radiation-detector specialist Kromek, engineering-services group Tekmar, online wine group Naked Wines and online fashion retailer Boohoo are no longer worth the tax breaks afforded to their investors thanks to their Aim-listed status. The companies look “ill-placed to survive what looks likely to be a tough few months”, so it is time to sell (8.05p, 8.3p, 81.4p, 37.6p).