Markets rallied towards the end of this week after the European Central Bank hinted that it may increase its quantitative easing programme, but this week’s roundup of share-tips from low-cost platform Trustnet Direct has an overwhelmingly pessimistic feel – five “sell” recommendations and only two “buy” notes.
Tuesday
Oxford Instruments – Sell
On Tuesday, Questor said investors should avoid Oxford Instruments. Two profit warnings, high debt levels and a difficult trading outlook mean there is little support for the nanotechnology specialist. A broker downgrade on Monday took the stock down to its lowest level in five years and reports of weak trading conditions in Russia and China caused further worries. Bargain hunters may be tempted to take advantage, given the stock trades on a 12 times multiple, but Questor said they should wait for signs of a pick-up in trading.
Capita – Buy
Tempus recommended investors buy Capita, which is trying to buy business process outsourcing company Xchanging. It claims that if the £400m deal completes, it will make £35m worth of synergies. The bid is seen as opportunistic, taking advantage of Xchanging’s recent rough ride to make a lower offer for the firm. The column still has concerns over Capita and, trading at 18 times earnings, it is not exactly cheap, but if the Xchanging deal completes at this price there is certainly value to be had.
Wednesday
Babcock – Sell
Questor recommended investors get out of Babcock. The main concern here is the impact the struggling North Sea oil industry will have on the helicopter division of the business, which runs flights to offshore rigs. The stock has been on a good run of late and shareholders who have been in since 2011 are sitting on healthy gains, but the risks ahead mean it is time to book profits.
Intercontinental Hotels – Sell
Tempus recommended staying away from Intercontinental Hotels. The company’s results, released on Tuesday, were solid enough and it is expected to offer a hefty payout to investors in February, but this is reflected in the high multiple the shares trade on. The column said anyone who is already invested should probably hang on for the payout next year, but warned now is not the time to buy.
Thursday
Ferrari – Sell
Questor said investors should avoid Ferrari. Shares in the sports car manufacturer jumped 8 per cent after its IPO on Wall Street on Wednesday, but the column suggests this is not necessarily a good buy. Construction is limited to maintain the prestige of the marque; production is currently at 7,000 units per annum and although existing facilities could support 9,000 units – in turn boosting the bottom line – this seems unlikely. Casting the brand aside, the stock trades on a 26 times multiple – two and a half times higher than that of Ford – and even comparable luxury brands such as Burberry trade on a 15-times multiple. Sales are well diversified globally, but again the Asian slowdown will do nothing to help matters here, while large tranches of shares will be held by a small group of individuals. There’s plenty of reason to look elsewhere.
Reckitt Benckiser – Sell
Yesterday, Tempus said investors should take profits in Reckitt Benckiser. Global drinks giants may be feeling the pinch from the emerging markets slowdown, but this doesn’t seem to be applying to the household goods sector where the emerging middle class consumers still seem happy to pay a premium for well-known brands. The latest earnings release reinforced this and full-year revenue projections were increased by a shade, too. However, shares are up 20 per cent on the year and trade on 26 times earnings, so while this stock and its dividend are regarded as safe as houses, the column suggests enterprising investors may want to think about cashing out now.
Performance of stock year-to-date
Source: FE Analytics
Friday
Travis Perkins – Buy
This morning, Tempus said investors should buy building supplies company Travis Perkins. Yesterday’s results showed slower growth of demand for its products and the market reacted accordingly, but this shortfall in activity should have been expected. Sector peers had already reported a slow summer, so why was the reaction so pronounced? One key issue was that enthusiasm for the sector had become so buoyant that shares were trading on an 18 times multiple in the summer – certainly toppy for a supplier of bricks and mortar. This is now down to a more acceptable 14 times and with no signs of the housing market running out of steam, the column said this is worth a look.
Relx – Hold
Questor said investors should hang on to Relx. Yesterday, the company announced it should hit full-year targets, offering further reassurance to investors in what can at times be a rather dull stock. The company continues to migrate successfully from print to digital for its reference services and remains successful at cash generation, which is reassuring for dividend payments. It’s worth bearing in mind that the professional services markets it caters for aren’t immune to economic downturns and the stock trades at a premium to the rest of the market, but this still looks like a long-term hold.
