Share tips of the week – 23 December
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 Dignity (LSE: DTY), a provider of funeral services, have been badly affected by regulatory scrutiny in recent years. “Around £500m of debt” has also undermined confidence, but the bears may now have pushed the shares down into value territory. With a “newish CEO” and a plan to sell and lease back crematoria to address debt there could be upside potential here for more risk-tolerant investors. Given an ageing population (not to mention an overwhelmed NHS), the death rate is likely to rise in the coming years. The stock is a buy for those with “a gallows mindset”. 370p
Eagle Eye Solutions
Aim-listed business Eagle Eye Solutions (LSE: EYE) uses software to help clients, including Sainsbury, Diageo and Coca-Cola, to manage their voucher and customer-loyalty programmes. In turn, these brands glean valuable data about customers’ shopping habits. By one estimate the global digital loyalty market could grow from $40.3bn last year to $98bn come 2032. The cost-of-living crunch is only likely to make shoppers even keener on coupons. On a price/earnings (p/e) ratio of approximately 35, the shares’ valuation is rich, but that is a fair price for investors to pay given the “huge” growth opportunity”. 605p
Markets are unhappy about US industrial group Regal Rexnord’s (NYSE: RRX) $5bn acquisition of smaller rival Altra Industrial Motion. The move is perceived as unduly aggressive at a time of economic uncertainty, but investors shouldn’t be so gloomy. The enlarged group will make everything from “powertrain equipment” to “actuators and servo motors”.In short, “many of the products needed to make factories run”. With the US Congress passing tens of billions of dollars-worth of support as part of the CHIPS act (designed to bolster the domestic semiconductor sector) and the Infrastructure Investment and Jobs act, the outlook for the American industrial sector is highly auspicious. $120
Commodity trading and mining giant Glencore (LSE: GLEN) has hugely outperformed the FTSE 100 in recent years, but it still trades on a forward p/e ratio of “less than five”. That reflects investors’ concerns about “legal issues” and a weaker outlook for the global economy and commodities prices. Nonetheless, Glencore’s shift to “future-facing commodities” such as nickel, cobalt and copper leaves it well-placed to profit from the energy transition, and in the meantime the shares yield 5.5% when factoring in special dividends. Given the current “exceptionally low valuation”, the shares offer a “favourable risk-reward opportunity”. 531p
...and the rest
Newcastle-based business software group Sage (LSE: SGE) has done a good job maintaining margins during the inflationary turmoil. The firm’s pricing power rests on the fact that businesses wanting to change their software systems face unpleasantly “high switching costs”, so they prefer to pay up instead. On a forward price/earnings ratio of 27 the shares are richly priced, but the rating is justified by an “attractive risk/reward ratio, so buy” (794p).
A consumer slowdown has seen box sales fall 3% on the year at packaging giant DS Smith (LSE: SMDS), but the group has been able to harness a strong market position to hike prices. That has yielded “excellent” performance, with revenue up 28% year-on-year and a 25% dividend hike. It remains to be seen whether the group can keep pulling the same trick if inflation persists, but on a forward p/e ratio of just 8.5 the shares look attractively priced, so buy (321p).
The Mail on Sunday
The war in Ukraine has made an eloquent case for defence groups such as BAE Systems (LSE: BA). The prospect of higher defence spending in the US and UK has pushed the stock up by 50% this year. With the shares close to an “all-time high”, they are now a “strong hold” (841p).
Investors seeking Asia-Pacific growth without the China headaches should look at Pacific Assets Trust (LSE: PAC). This economic and social governance (ESG)-orientated vehicle has only a modest 7%-8% allocation to China, preferring India, Taiwan and Indonesia. The shares are on an “attractive 8.1% discount to the portfolio’s net asset value” (354p).