Message (pictured), who runs the four crown-rated Old Mutual UK Equity Income fund, expects the spending power of everyday Britons to increase in 2014 as recovering GDP figures take hold. “I continue to buy into the domestic recovery,” he said. “A lot of the companies have done well without the help of the UK economy, so imagine how good it will do with a tailwind.”
“There’s definitely a feel-good factor in the UK right now. A lot of consumers are feeling a lot better and a lot more confident, and I think you’ll see a lot of companies benefit from that this Christmas and beyond.”
Here Message and The Share Centre’s Graham Spooner identify some of the stocks they think will benefit from a pickup in consumer spending.
Galliford Try
“This is a construction business, which has benefited from the pickup in housebuilding,” said Message.
“This business is very much tied to how the consumer is feeling – when they’re more confident, more houses get built, and Galliford Try should benefit.”
The FTSE 250 company has already had a good run, posting returns of 58.37 per cent over one year and more than 300 per cent over three. However, Message thinks the stock is set for future growth, which should also support its dividend in the coming years.
Performance of stock and index over 1yr
Source: FE Analytics
According to Bloomberg, the £927m company is currently yielding 3.63 per cent and is on a forward price/earnings (P/E) ratio of 13 times.
FE data shows that it is a top-10 holding for 13 funds in the IMA universe, including the five crown-rated PFS Chelverton UK Equity Income portfolio and Giles Hargreave’s Marlborough Multi Cap Income fund.
Marston’s
“This brewery and pub owner has very well regarded management, and has turned around the business recently,” said Spooner.
“It’s far more family-orientated these days, and so it doesn’t only make its money from drink. A happier consumer should see more families go out for dinner, and Marston’s will be a beneficiary of that.”
Marriage makes a similar point about brewery company Greene King, which he is backing in his portfolio.
As Spooner suggests, Marston’s had a tough time in 2009 and 2010, but new management has seen a reversal in fortunes since then. Our data shows the FTSE 250 stock is now up 64.38 per cent over a five-year period, though this is still well behind the returns of the FTSE All Share.
Performance of stock and index over 5yrs
Source: FE Analytics
The £826m company is trading on a forward P/E of 11 times and is currently yielding 4.93 per cent. Unicorn UK Income and Cazenove UK Smaller Companies are among the five funds that hold Marston’s in their top-10.
William Hill
Spooner identifies another potential turnaround story – William Hill – as a stock that will benefit from a recovering UK consumer.
Performance of stock and index over 5yrs
Source: FE Analytics
“You’ve got the World Cup next year, and with a bit of extra money in punters' pockets, this could be one to really benefit,” he said.
“It’s had a tough time at certain periods and just recently they’ve had some pressure on their share price, not helped by certain sports' results not going their way.”
“These things tend to even themselves up though – the bookies always win in the long-run – and so could see the share price come back.”
Spooner adds that William Hill is ideal for investors looking to drip-feed their money in, as the gambling sector has seen profit warnings of late.
The FTSE 100 stock has a market cap of £3.3bn and is trading on a forward P/E ratio of 14 times. It is yielding just over 3 per cent.
Dimensional UK Small Companies is the only fund that holds William Hill in its top-10.
Booker
“This cash and carry business has a lot going for it,” said Spooner.
“It is expanding, has a highly regarded management team, and the feel-good factor will help restaurants and takeaway businesses, which Booker provides for.”
“The demand for the core cash and carry business should also increase. It’s recently made a couple of high-profile acquisitions, which will also help its cause,” he added.
Anyone interested in Booker must accept that they are buying into a stock that has already had a very good run. Our data shows the FTSE 250 company has returned a whopping 819.54 per cent over five years, and is up 71.81 per cent over the last 12 months alone.
Performance of stock and index over 5yrs
Source: FE Analytics
This strong run is reflected in its hefty forward P/E ratio, of over 30 times.
Booker has a market cap of £2.8bn and is yielding a little over 2 per cent. Marlborough Special Situations is one of 20 funds to hold it in its top-10.
Marks & Spencer
“Marks has just launched its autumn and winter range and is marketing it really aggressively,” said Spooner. “If consumers spend more, it should benefit, though there are always question marks around Christmas because there is so much competition.”
“In the past when Marks has marketed aggressively it’s paid off, so it could be another good year.”
Spooner adds that the company is underpinned by a strong property portfolio, which gives it stability.
Marks has returned 15.31 per cent over the last 12 months – just below the FTSE All Share – meaning that investors won’t be buying into a stock that has already had a stellar run.
Performance of stock and index over 1yr
Source: FE Analytics
The FTSE 100 company, which is trading on a forward P/E of 14 times and is yielding 4.2 per cent, is a major holding for only four funds, including Majedie UK Equity.
