In the past few days, the FTSE has slowly begun to make up some of the ground it lost in the latter part of the summer.
The biggest riser has been Glencore, up by more than 30 per cent since Monday as it recovered from an overly pessimistic broker note.
Performance of stock since Monday
Source: FE Analytics
However, as the weekly round-up of share tips from Trustnet Direct shows, alarm bells are still ringing around the stock.
Tuesday
Glencore – Sell
On Tuesday, Questor said investors should get out of Glencore. Even at its depressed prices, it said there was no point in wading in, with Monday’s news emphasising just how exposed investors can be when debt builds up. The company is now stuck in a vicious cycle – profits are falling as commodity prices decline, so it has been forced to cut debts to prevent a credit downgrade. These debt cuts mean curtailing trading activity, which in turn will further hamper profitability. There is no quick fix to debt problems, as this situation shows, so Questor said investors shouldn't try to catch a falling knife.
Vodafone – Buy
Tempus recommended investors buy Vodafone. Monday’s news that it had ended asset swap talks with Liberty Global was carefully worded, with the company leaving the door open for further talks or even a full merger. The column said that any resumption of talks was some considerable way off, but the drop in Vodafone’s share price has left the stock yielding 5.5 per cent and with a clear enough growth strategy – albeit not as dynamic as it may have been had the tie-up gone through – there could be good times ahead.
Wednesday
Wolseley – Buy/sell
Tempus said investors should buy building supplies company Wolseley after a small wobble in its full-year results sent shares crashing. The column pointed out the outlook remains positive – H1 growth is forecast at 4 per cent rather than the previously stated 6 per cent – leaving it to conclude the sell-off was overdone. With the stock trading on less than 15 times earnings, Tempus said it could be a good time to buy off the lows.
Questor took a far more pessimistic view, saying that although the outlook remains relatively upbeat, the cyclical nature of the building supplies business gives investors reason to be cautious. The company’s shares fell by almost 90 per cent the last time there was a slowdown and although all may look good in the UK housing market, it is important to remember that three quarters of revenue comes from the US. With the stock on a 16 times forecast earnings multiple, the column’s concern was that investors are still being far too optimistic over the growth of future profits.
Thursday
Saga – Buy
Tempus tipped Saga as a good bet for the long term yesterday. Few retail investors jumped ship following the one for 20 loyalty bonus paid out in May, but given the lacklustre performance of the shares since floatation, this probably makes sense. The stock is now moving towards a brighter future, with the prospect of a 3.3 per cent dividend yield, while the sticky customer base isn’t running away from rising insurance premiums. This has long-term potential.
Entertainment One – Hold
Questor said investors should hang on to Entertainment One – now known as eOne. The company’s shares fell to a two-year low on Wednesday after it announced a rights issue to fund the purchase of a bigger stake in Astley Baker Davies, which makes Peppa Pig. A 13 per cent decline in revenues from box office releases made something of a pig’s ear of the company’s latest earnings, although the television side of the business continues to do well off the back of the Peppa franchise. Until the outlook becomes clearer, the column said it is reserving its judgement on the stock.
Friday
Cranswick – Hold
Earlier this morning, Questor said investors should continue to hold Cranswick. The nation’s largest sausage maker saw its shares rise 6 per cent yesterday after earnings came in ahead of expectations. Financial pressures among consumers have been driving the sales of pork products, so despite the aggressive price wars in the supermarkets, the business is continuing to fare well. It is diversifying into poultry and also increasing its range of premium pork products, where margins are higher, but recent gains in the share price have driven the stock to trade on a 17 times multiple – the outlook remains solid, but it is probably too late to get onboard now.
Johnson Matthey – Buy
Tempus said investors should buy Johnson Matthey. The company provides catalytic converters to the car industry, with different bits of kit for petrol and diesel cars alike. The latter are six times more profitable to the business and in the wake of the Volkswagen scandal, there is concern that diesel cars could be driven off the road. However, even if this is the case, there is still a big market for petrol, while heavy trucks are likely to remain powered by diesel regardless. Falling platinum prices have also hit the shares hard in recent months, but the sell-off looks to be overdone, with the market reading too much into the Volkswagen affair.
