Share tips of the week – 18 November
MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
Five to buy
Shares in online car marketplace Auto Trader (LSE: AUTO) have been hurt by consumers tightening purse strings, motor retailers’ lower advertising spending and the shift away from growth stocks. Still, the firm has been able to keep “squeezing more out of retailers”, which helped boost revenue for the six months to 30 September by 16% year-on-year.
While the stock doesn’t look cheap at 20 times forecast profits, it is trading at the bottom end of the range seen since it floated in 2015, which could make it attractive to buyers. AutoTrader is also a highly cash-generative business with “enviable” operating margins and a dominant market position. 579p
Many stocks look cheap at present thanks to global economic turmoil. But BP’s (LSE: BP) valuation is “unjustifiably low”. It is selling for less than four times forecast earnings. The company is not immune from wider trends. Demand for oil and gas could fall but “even the very darkest of today’s downbeat economic forecasts” does not justify such a low valuation.
Strong oil prices have produced vast amounts of free cash flow at BP, which has enabled the company to buy back $8.5bn worth of shares. BP is also expected to raise its dividend by 4% a year over the next three years, on top of $4bn of annual share buybacks. 478p
The Mail on Sunday
Over 500 million people suffer from respiratory problems, while lung conditions are on the rise. Portable oxygen machines allow people with these to “go shopping when they feel like it, meet friends or even go for gentle hikes”.
Belluscura’s (LSE: BELL) set of devices are “lighter and more effective than any on the market to date”. The Aim-listed company’s X-PLOR device weighs just 3.5 lb (1.6kg) and can be strapped to the back or worn over the shoulder while delivering 95%-pure oxygen to patients. Its latest device is “even more sophisticated”.
Both devices have been approved by the US and the company has ISO certification, which should allow it to sell in the UK, Europe and Asia by 2024. 56p
The Sunday Times
Diageo (LSE: DGE), the maker of Johnnie Walker, Guinness, Baileys and Tanqueray “could lift investors’ spirits over the next few months”. Diageo has had a “buoyant” year; sales grew by over a fifth to £15.5bn in its full-year results this summer, while price rises have helped protect margins from inflation. The company expanded in North America too thanks to the sales of its whisky and Captain Morgan rum.
While the company will be affected by the “global economic turbulence”, its brand power and “wide geographical spread” should help shield it from the worst of it. Diageo is a “reliable dividend payer” too. 3,662p
Snacking giant Mondelez (Nasdaq: MDLZ), active in over 150 countries, is well known for famous brands including Cadbury Dairy Milk and Oreo. These products are not entirely immune to inflation and the cost-of-living crisis but the labels inspire loyalty from customers.
Mondelez is already a “colossus” in the biscuit and chocolate worlds, but its brands still have great scope for growth around the world. The firm has been able to raise prices without sacrificing sales volumes, which demonstrates its brands’ pricing power. Analysts expect the group’s dividend to rise from $1.47 this year to $1.50 next year, and to $1.63 the year after that. $63.33
...and the rest
ITV’s “shiny new streaming platform” is not enough to offset the “deterioration in advertising spending” that will continue to affect the company and hit earnings. Avoid (79p).
Primark owner Associated British Foods is not immune to the shaky macroeconomic backdrop, but this seems to have been factored into its share price already. Buy (1,570p).
Aim-traded forex manager Alpha FX says full-year profits should exceed expectations; it has benefited from rising interest rates, yielding £6m of additional interest income over four months. The shares have fallen by 17% this year owing to the “nervous market’s wider sell-off”. Buy in now (1,990p).
Financial services giant Legal & General looks poised to benefit from rising interest rates, and has generated enough cash to raise its dividend. The 2022 yield is 8%. “Factor in sustained growth… for several years and investors can see the shares as an inflation hedge.” Buy (239p).
“Too much doom and gloom” seems to have been priced into pub operator Marston’s share price. The latest trading update was encouraging, while the group should also benefit from the World Cup starting this month and the first uninterrupted Christmas trading period in three years. Buy (37p).
Samsung’s shares are trading at $1,129. They have lost 41% of their value in dollar terms since January 2021. The decline of sterling cuts that loss to 30%, but demand for the products in which Samsung’s memory chips are used is slowing so the shares look likely to fall further. Sell.