In a week in which there was a downbeat mood in markets due to the situation in Greece, Trustnet Direct’s roundup of share tips also has a distinctly pessimistic feel, with four sell recommendations and only two stocks tipped as “buys”.
Tuesday
Severn Trent – Sell
Tempus recommended taking profits from Severn Trent on Tuesday. 
With regulation dictating the dividend policy of water firms, it is difficult not to see the appeal of a stock like this one, but the shares have been buoyed further of late by bid speculation in the wake of the rise that followed the election result. The appeal of the dividend has also pushed up the share price and it now only offers a 3.8 per cent yield. While a bid could deliver more upside, the rise seen on Monday was impressive and could be a cue to get out.
Aggreko – Sell
Questor said investors should sell Aggreko. The company fell out of the FTSE 100 following sluggish growth, despite some moves to improve business performance by splitting the company into two divisions. Its share price has suffered off the back of falling oil prices as demand for its kit in remote locations has waned. Shares are now down by more than one-third from their 2012 peak and until growth resumes, Questor said there is no value to be had, even at these prices. Half-year results are due in around six weeks, so some good news may be in the pipeline, but with shares offering just a 1.7 per cent yield, the column said this is one to avoid.
Wednesday
Petrofac – Buy
Tempus tipped Petrofac on Wednesday. After a run of bad news, investors were relieved to see no more gloom in the latest interim results. The company did however report a growing backlog of work that could hit $23bn. With the stock offering a 4.5 per cent dividend yield, it certainly has some allure, although sustaining this payout could be difficult in the short term if there’s any more bad news. Asset sales in Mexico may offer some respite too, but the stock trades on a multiple of less than 10.
Serco – Sell
Questor said investors should avoid Serco. The outsourcing group saw shares rise 8 per cent on Tuesday as traders started to buy into the turnaround programme that is being implemented by Rupert Soames. The firm is leaving its Indian business as part of a plan to put the focus back on the UK, but it is still constrained by the fact it bids for long term contracts, then has to hope costs remain in check. There is no dividend and the restructuring is likely to keep squeezing profitability – even though the shares are now trading at a 75 per cent discount from the July 2013 highs, it is still not time to jump in.
Thursday
Stagecoach – Sell/hold
There were mixed opinions on Stagecoach on Thursday. Questor classed it as a “hold” after Wednesday’s full-year results opened the door for an inflation-beating dividend, with shareholder returns set to increase by 10.5 per cent. One division of the company has been left struggling in the wake of low fuel prices – US bus operations are underperforming as passengers return to their own cars – but UK rail should provide a solid backbone for growth, while the domestic local bus operation is also regarded as a driver of value. Capital growth may be limited from here, but Questor said the prospect for inflation-busting income should not be ignored.
Tempus took a more pessimistic view on the stock, citing sluggish passenger growth and an uncanny ability for the sector to get it wrong by jumping into other countries – such as the US – as reasons to steer clear. The column did, however, point to the strong operating profit delivered from the Virgin Rail joint venture – profits jumped from £2.6m to £28m – but said this means all the good news appears priced in.
Friday
Debenhams – Buy
Tempus tipped Debenhams as a long-term “buy” this morning. Shares are up 20 per cent since the start of the year as the multi-pronged revival strategy continues to yield results. Surplus store space is being sub-let to guest retailers, there is a reduction in the excessive discounting the store became synonymous with, while the online service has also been overhauled. It may be tempting to take profits after the good start to the year, but the column said there is still further to go.
DS Smith – Buy
Questor recommended investors buy DS Smith. The FTSE 250 packaging company saw pre-tax profits jump by 20 per cent yesterday, despite the adverse effects of a weakening euro. It announced further expansion via acquisition, while borrowing also remains in check. The company rewarded investors with an inflation-busting 14 per cent hike in dividends and the continued growth of online retailing means that the outlook should remain strong. Questor said there is a risk that this sector can prove to be rather cyclical, but the strength of the balance sheet leaves the company in a solid position.
