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Jon Ingram: Four stocks to outperform the market

30 January 2016

The co-manager of the five crown-rated JPM UK Dynamic fund discusses his biggest overweight positions, and why he believes they will continue to bolster the fund’s performance over the long term.

By Lauren Mason,

Reporter, FE Trustnet

Many popular pharma companies share characteristics with bond proxy sectors due to their stable cash flow, pricing power and relative immunity from the economic cycle, warns Jon Ingram.

The manager, who co-runs the five crown-rated JPM UK Dynamic fund alongside John Baker and Blake Crawford, believes that while traditionally defensive traits have made the sector appear attractive to many investors, the market area could get hit by gradually rising bond yields.

While the manager has maintained the fund’s underweight in both pharmaceuticals and biotechnology for many years though, he believes that there are still plenty of attractive opportunities in the UK market at the moment which are likely to outperform over the longer term.

In the below article, Ingram gives FE Trustnet the names of his favourite stocks in the UK market that he holds, and believes continue to look appealing to new investors at the moment.

 

WH Smith

Stocks in the UK consumer discretionary sector have seemed particularly attractive to many investors recently, due to expectations that the plummeting oil price will soon trickle through and increase consumer spending.

Despite this, Ingram points out that a number of UK clothing retailers have taken a turn for the worst over the last few months due to unexpectedly warm weather putting a dampener on winter clothing sales.

As such, the manager is avoiding companies with less reliance on high margin winter coat sales but still reside in the consumer discretionary sector, and as such is turning to the likes of WH Smith.

“It has gained strong profit growth from its profitable presence in airports and transit stations,” he said.

“As falling oil prices and rising wage inflation help to fuel travel, WH Smith is a beneficiary. The same theme underpins my conviction in many airline companies, where I’m currently overweight.”

Over the last three years, the stock has outperformed its FTSE 250 index by 152.28 per cent, providing a total return of 185.73 per cent.

Performance of stock vs index over 3yrs

 

Source: FE Analytics

While its performance fell by more than 4 per cent halfway through November, it has since been on the increase again and raised its profit forecast for 2016. The retailer says this is the result of strong Christmas trading figures and the rocketing popularity of colouring books for adults following the latest craze for ‘colour therapy’.

WH Smith has a P/E ratio of 20.38, an EPS of 87.1 and a dividend yield of 2.22 per cent.


Ryanair

One airline stock that Ingram particularly likes is RyanAir, as he says that high traffic and strong profit margins make it look particularly attractive.

The budget Irish airline, which is headed by Michael O’ Leary, has recently placed a greater emphasis on fuel efficiency. Previously in 2014, the firm purchased a fleet of Boeing 737 planes, which hold eight extra seats and now account for £62,000 worth of extra money made per plane each year.

“The company’s low-cost business model is well known, but its more recent move upmarket has seen RyanAir introducing more stylish outfits for crew as it seeks to attract more business travellers and flying into a greater number of main airports,” Ingram explained.

“In addition to this, the lower oil price has also had a very positive effect on profits. RyanAir upgraded its full year guidance leading to positive revisions for expected profits. The company is forecasting that it has ambitions to grow their number of passengers to 180 million by 2024.”

Over the last three years, the stock has outperformed the FTSE 100 index by more than 27 times.

Performance of stock vs index over 3yrs

 

Source: FE Analytics

RyanAir has a market cap of £18.9bn and has a P/E ratio of 22.14 per cent. It also has an EPS of 62.59.

 

ITV

ITV is both the oldest and largest terrestrial television network in the UK, and is a constituent of the FTSE 100 index. Ingram says that the stock is appealing because it has an attractive content production unit as well as the broadcasting segment it is best-known for.

“In terms of advertising, revenues can be volatile, but the trend over time has been positive as we see the economic recovery in the UK gaining traction,” he said.

“In the production business, there is a major opportunity for ITV to monetise content. They have a number of successful shows that they can sell on to various channels globally and they have a strong track record of doing so, I don’t think is yet fully reflected in analyst expectations.”

The stock may not be for the more cautious investor, as it has suffered bouts of volatility and has dipped well below its index across several years since it floated on the UK stock market in 1995.

Because of significant outperformance in recent years though, it has managed to beat the blue-chip index significantly over the last decade, providing a return of 204.07 per cent compared to the FTSE 100’s return of 47.85 per cent. 

Performance of stock vs index over 10yrs

 

Source: FE Analytics

ITV has an EPS of 11.6 per cent, yields 2.01 per cent and has a P/E ratio of 22.31 per cent.


Fever-Tree

Many investors have been buying into mid-cap restaurant chains and breweries over recent months due to an increase in consumer spending confidence. Manufacturer of premium drink mixers Fever-Tree, which distributes stock to various breweries, restaurants and supermarket chains, has certainly reaped the benefits of this and has grown exponentially since its IPO in November 2014.

Over this time frame, it has provided a total return of 302.6 per cent, outperforming its FTSE AIM index by 305.78 percentage points.

Performance of stock vs index since IPO

 

Source: FE Analytics

“I was an early believer in the potential of this start-up and it has stormed to explosive growth in 2015,” Ingram said.  

“I’ve been an investor since the Fever-Tree IPO in November of 2014, when shares debuted at 134p, and I’ve continued to add to the fund’s holding. The fizzy drinks minnow has since risen to more than 600p, which is a phenomenal rate of growth.”

The start-up business was first backed by James Bond creator Ian Fleming’s family office when it launched in 2005.

Founded by Charles Rolls and Tim Warrillow in South London, the company has since won a series of awards including the 2013 Grocer Gold award for Exporter of the Year, two Great Taste awards in 2012 and 2013 and earned ‘Cool Brands’ status in 2015 for the fourth consecutive year.

Fever-Tree has a market cap of £765.49m, an EPS of 5.6 and a P/E ratio of 117.5

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