Three to buy
Bellway
Housebuilder Bellway faces challenging near-term prospects. Rising interest rates are likely to dent demand for new homes, but this uncertainty has been priced into the shares. They are currently trading on a “bargain-basement” price/earnings ratio of 4.2.
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Meanwhile, the UK’s population grew by 450,000 people a year in the ten years to 2020, but just 165,000 new homes were built. The ongoing imbalance of demand and supply could continue to support house prices, regardless of the “downbeat trading conditions”.
Bellway also “has the financial means to ride out the current economic downturn”. 1,761p
Literacy Capital
Literacy Capital invests in small but promising firms around the UK and helps them grow.
Literacy invests for the long term and avoids sectors including gambling and low-cost alcohol, opting instead to help firms such as Butternut Box, which provides dogs with healthy meals, and Grayce, which recruits, trains and employs graduates in information technology and related fields.
The stock has yet to pay a dividend, but “that is likely to change within a couple of years” as Literacy is working towards tripling in size to £1bn. The group “offers shareholders a chance to invest in a business that is growing fast and doing good”. The shares are a buy. 389p
Team17
Aim-listed Team 17 “became a stockmarket darling” throughout the pandemic as people turned to videogames for entertainment. However, it has struggled since; the stock is down 57% over the last 12 months.
People are spending more time outside and the company has cut the number of games it plans to release this financial year from 12 to eight.
Still, sales jumped by a third in the six months to July; recent acquisitions are paying off; and the fact that gaming is “a cheap night in” bodes well in a cost-of-living crisis. 345p
Two to sell
Hochschild Mining
Gold is becoming increasingly expensive to mine, which augurs ill for Peru-focused Hochschild Mining.
The group has undergone a period of intensive capital spending and its market value has shrunk amid concerns over potential political threats to production. The government recently announced that all of Hochschild’s mines would be closed, and though it has since taken a “more conciliatory” stance, “investors remain rattled”.
One of the group’s mines is about to shut and it is waiting for the government to confirm a long-term extension of its environmental impact assessment permit, which will “effectively decide” whether the mine that underpins its earnings can continue to operate.
These problems “make margin preservation and shareholder value creation especially difficult” for Hochschild. Many shareholders will suffer losses if they sell now, but hanging on could make things worse. 61p
Netflix
Netflix added 2.4 million new subscribers over the three months to September after two consecutive quarters of losses, but investors should not assume this implies “a return to a double-digit rate of revenue growth or a faster rise in operating profits”.
Consumers may cancel their membership owing to the rising cost of living and competition from rival platforms is intensifying.
The streamer is to launch a new, cheaper plan with advertisements, which could attract new subscribers and create additional revenue. How long it will take to be as profitable as full-price subscriptions, however, is unclear. Avoid. $283
...and the rest
The Times
Bunzl “provides products from first-aid kits to coffee cups to corporate customers”; it also manufactures paper and plastic packaging. Despite the threat of recession, sales show no sign of slowing and margins are expected to exceed their historical average this year. Buy (2,764p).
Investors’ Chronicle
The recruitment sector is highly volatile so it is no surprise that investors are uneasy about its prospects. Nevertheless, specialist staffer SThree focuses on jobs in science, technology, engineering and finance – industries that “look more robust than most”. The company’s valuation, moreover, is tempting. Buy (352p).
The Mail on Sunday
Zoo Digital produces software that allows films and series to be translated into dozens of different languages. The company has relationships with all the streaming giants and its network of over 10,000 workers will allow it to keep up with demand. “A strong hold, at the very least” (143p).
The Telegraph
Diploma has performed well this year, yet it has “tracked the index lower”. The wiring, cable and seals supplier has a strong balance sheet, pricing power, a clear advantage over its peers and the “capacity to strengthen its market position through acquisitions”. Buy (2,444p).
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