National Grid
Energy prices have become a controversial political issue over the past year, but National Grid shares have still managed to outperform the FTSE. Miah says this could well continue.
Performance of stock vs index over 1yr
Source: FE Analytics
“National Grid has overcome some regulatory issues in 2013 and is looking to invest roughly £26bn over the next seven years on its infrastructure,” Miah said.
“The management is looking to improve the performance of the US operations.”
“The UK political environment should also be less significant for National Grid because of the relatively large amount of revenues it generates from the north-eastern parts of the US.”
“For many portfolios, this stock would form part of a core set of holdings. It is especially suitable for investors looking for an option with some defensive qualities, as it pays a fairly attractive dividend yield just above 5 per cent, which the management intends to grow in line with the rate of inflation.”
The stock is trading on a P/E [price to earnings] multiple of 12.3 times compared with 14.53 times for the FTSE.
Amec
A growing number of managers are considering returning to the mining sector as hopes build that it is close to a turning point in its fortunes.
Performance of sector vs index over 3yrs
Source: FE Analytics
Miah says that engineering firm Amec offers a safer way to play this theme.
“Unlike some of its competitors, Amec’s business is slightly more diversified, with operations in areas such as mining, nuclear, electricity transmission and distribution, transportation and infrastructure,” he said.
“While there may be some pessimism in the short-term, the longer-term prospect for the industry is better.”
“The company continues to build on its record order backlog and future growth should be helped by expansion into the emerging regions along with strategic acquisitions and renewed economic optimism. This should flow through to more meaningful contract awards in the coming years.”
“On a price/earnings basis, Amec looks undervalued compared with the peer group and a dividend yield near 3.5 per cent is attractive.”
Booker Group
FTSE 250 company Booker is a popular stock with many UK managers with a mid cap or all cap approach.
FE data shows that 19 funds hold it in their top-10.
The stock has seen a meteoric rise over the past five years, according to FE Analytics data, backed by steady rises in sales and earnings.
Performance of stock vs index over 5yrs
Source: FE Analytics
“As part of its ‘broaden’ strategy, it is growing through the launch of operations such as Chef Direct, acquisitions such as Makro UK, which is expected to generate £26m in cost savings, and international expansion in Asia,” Miah said.
“The group is also building on its strategic alliance with one of Europe’s leading retailers, Metro AG, which is a major shareholder and has gained foothold in the vast Indian market.”
“Other aims include to improve the cash-and-carry business-centre experience and to harness the internet through Booker Direct, which offers a delivery wholesale business that boasts customers such as the prison service in England and Wales, Marks & Spencer and Vue cinema chain.”
“It will further promote Ritter Courivaud as a speciality food supplier to restaurants, and Classic – a trade wholesaler to pubs and licensed customers.”
“While we view the longer-term growth prospects as very good, investors should be aware that the shares have performed exceptionally, giving a modest dividend yield and a relatively high price multiple when compared with Booker's peers. Drip-feeding on share price dips would be worth considering.”
The stock is trading on a current P/E of 30.3 times.
Regus
Miah also tips temporary office space supplier Regus.
“Regus is an international business with a broad geographical spread and is also the largest business of its type in the world,” he said.
“Its services are also useful for large established corporates looking to expand their geographical reach,” he added.
“There is growing structural demand for more flexible and mobile working solutions helped by globalisation and communications technology.”
“Despite the weakness of the global economy during the last few years, Regus has managed to rapidly grow its business – now covering more than 100 countries, 600 cities and targeting 2,000 office locations by the end of this year.”
“In the short- to medium-term, earnings could be limited due to the large investments required to establish new offices, but these should bear fruit, especially if the global recovery maintains its momentum.”
Tullow Oil
The analyst suggests that Tullow Oil could be due a rebound after a year in which shares lost 36.99 per cent.
Performance of stock vs index over 1yr
Source: FE Analytics
“During the past decade, Tullow has had an extremely good success rate in finding oil in various regions of the world, especially in Africa,” Miah said.
“However, in the last 18 months or so, the success rate has come back down to earth and the share price has been punished for some negative drill test results.”
“In recent weeks, the news has been a little more promising, following drilling successes in Kenya and Mauritania and upwards appraisals of oil reserves, while there are plenty more drill tests to come in 2014.”
“Production from existing operations still shows growth and the various governments in eastern Africa are supportive of the business and committed to improving the oil infrastructure.”
The analyst says that the company could well profit from corporate activity this year, such is its weakness.
“During the year, it may well be possible for Tullow to sell off some of its key assets to the oil majors and there has been increasing speculation that the company itself could be a takeover target,” he said.
AGA Rangemaster
One high-risk stock Miah likes is AIM-listed AGA Rangemaster.
“AGA Rangemaster is a small cap AIM stock that manufactures high-end cooking appliances. The financial crisis had a major impact on the company’s fortunes,” he said.
Performance of stock vs index over 5yrs
Source: FE Analytics
“During this period, it was essential for the business to cut costs and it has done this relatively successfully.”
“After a slow start in 2013, there has been a noticeable pick-up in activity, especially in a recent quarterly management report that suggests ‘the tide is turning, the mood among customers is better and there is a buzz about the new products’.”
The stock is being supported by the UK housing recovery, Miah says, although its real prospects from growth come abroad in emerging markets.
Currently 15 per cent of sales come from outside the major western markets and the company is targeting growth there.
“The collaboration with Vatti Group to develop a range for the high growth Chinese market should help reach this target,” Miah said.
“A full product launch into China will begin in the first quarter of 2014, and a revamped product line should yield significant improvements in the group’s sales prospects.”
“This is trading on less than one time its book value and we recommend the company as a ‘buy’ for investors willing to take on a higher level of risk.”
