When markets take a significant hit, panic inevitably follows, leading investors to make decisions based on emotion rather than fundamentals and exaggerating already significant share price corrections.
However, this also creates opportunities as, once the dust settles, relatively simply analysis can highlight which businesses are in a much better shape than suggested by the fall in their share price.
This appears to be a theme in Trustnet Direct’s roundup of share tips from the national newspapers this week, with the columns pointing out two stocks in particular that now look attractively priced after a Brexit battering.
Tuesday
Ryanair – Buy
Questor started this week’s roundup by recommending investors buy Ryanair. The airline has been rattled by the Brexit vote, with fears of falling consumer confidence raising questions over the outlook, but the column said the downside may have been overstated. The company is able to pivot its operations away from the UK market and looking at Monday’s results, shares now trade on a very modest P/E ratio of 10.6 for next year. Yes, this is a risky business, but against the peer group the column said Ryanair is the best-placed player.
William Hill – Sell
Tempus said investors should sell William Hill, pointing out the recent bid looks speculative at best, with some ill-suited rivals attempting to snap up the bigger bookmaker while it is at a low ebb. According to The Times, William Hill’s response showed there was no clarity over how any merged entity would either enhance the company’s position or deliver superior value, while the dominant shareholders at Rank and 888 would have to be happy accepting a degree of dilution in terms of their shareholdings. What matters the most is going to be the shareholder response, however, and the subsequent jump in shares means the necessary support may be rather easy to find. With the stock now trading on a multiple of 15, unless you’re confident that a deal will proceed, Tempus said now is a good time to get out.
Wednesday
Games Workshop – Buy
Buy Games Workshop, was the message from Questor on Wednesday. The stock has two key appeals – a decent dividend and the prospect of benefiting from the steep decline in the pound. The article notes that despite the high-tech alternatives that are available, the brand has retained a loyal band of followers, while it also makes a steady revenue off selling IP rights to video game producers. Questor said that trading on a multiple of just 11 times earnings, this is certainly a stock worth watching, but it seems that the currency swings will hold the most potential for the bottom line.
GKN – Hold
Tempus recommended holding on to GKN, the maker of car and aircraft parts. Despite analyst comments, the column said a demerger of land and aero divisions is unlikely as the two sides have a habit of balancing each other out. The recent acquisition of Fokker is notable as the margins here are on the low side and this will act as a drag on the business – at least in the near term. Cost savings are on the agenda and although the pension deficit should erode if inflation picks up, this is still likely to be a concern for investors. On the other hand it is playing a resilient line over Brexit, with management expecting the referendum result to hinder growth in Europe, while stopping short of eradicating it altogether – and further afield there’s no expectation of any real impact. Still, “not one to wade into right now” appears to be the summary.
Thursday
Taylor Wimpey – Buy
Buy Taylor Wimpey, said Questor. The housebuilder has no real exposure to London, where prices are vulnerable, while outside of the capital, customers have already stopped talking about Brexit. There’s been no meaningful change in house sales and the market gave a warm reception to the 9 per cent increase in profits that was recorded for the first half of the year. With 40 per cent of buyers being funded by the government’s Help to Buy scheme, this is seen as offering further support to the company – although low interest rates and job security also play a key role here. Usually a dividend yield of 7 per cent or so would raise eyebrows, with concern that a company paying out at this rate may be in trouble, but with the housebuilder visibly piling up the cash, this doesn’t seem to be an issue.
Performance of equity since 23 June
Source: FE Analytics
Friday
AstraZeneca – Buy
Earlier this morning, Tempus said investors should buy AstraZeneca. The company has an incredibly strong pipeline of new drugs in development, including some exciting advances in cancer treatment. The column said that if it manages to realise its goals here, then the products will be very difficult for the generic manufacturers to copy, which will give the company an even bigger advantage. On top of this – as we saw with ARM Holdings – UK companies are suddenly an awfully lot cheaper than they used to be for foreign buyers. There’s a perfect storm brewing here and it could offer some bright prospects for the stock.
Diageo – Buy
In its second share tip today, Tempus recommended Diageo. Yesterday’s earnings offered some degree of redemption for the chief executive who a year ago was at risk of losing his job. The six global brands all increased organic sales for the year and the US business returned to growth, too. Yes, emerging markets are a bigger challenge, but these don’t seem insurmountable and given the company has benefited from Brexit, there’s arguably more potential here, too.
