Global markets surprised on the upside this week, after data coming out of China showed stimulus measures designed to kickstart the economic recovery appear to be working.
Despite this bullish backdrop, this week’s share-tip roundup from Trustnet Direct was split equally between “buy” and “sell” recommendations.
Tuesday
Cranswick – Buy
Tempus said investors should buy Cranswick for the long term. The pork producer has recently expanded into the poultry market and has managed to do so at a price that is both conservative and puts no real strain on the company’s cash-rich balance sheet. This transaction has also come with a fair swathe of land, paving the way for expansion in the future. On the flip side, the stock does trade at a premium of 22 times earnings, but volumes are growing apace and exports are finding favour, too. There’s clearly plenty to spark interest here.
Iofina – Buy
Buy Iofina, was the recommendation from Questor. Shares in the iodine manufacturer close on doubled in value on Monday in the wake of a positive interim update. The share price had been knocked back of late with a number of complex factors affecting the backdrop, including production stoppages off the back of an earthquake and problems in sourcing the raw material that it electrolyses the iodine from, as this is a by-product of drilling for natural gas. Critically, however, the company is making more product at a lower cost than it was a year ago – it may be high risk, but the column is willing to roll the dice.
Wednesday
Carclo – Buy
Questor said investors should buy Carclo. This is a West Yorkshire based firm that produces high grade plastics used in medical and electronic devices as well as a range of LED lighting solutions, including the headlamps for Aston Martin cars. It reported an upturn in activity for the second half of the year and global expansion is progressing well, with production facilities in the US, China and India coming on stream. With the outlook for revenues set to remain positive and shares trading on a conservative rating, this stock looks well placed.
ASOS – Sell
Avoid ASOS, said Tempus. Shares are back where they were a year ago but the column said it is struggling to put a rational valuation on the business – which currently trades on a 56 times multiple. ASOS isn’t hitting the headwinds faced by peers such as Next, it is innovating in terms of distribution with customers able to collect from Boots stores, and margins are improving, too. On top of this, international developments seem to be meeting with approval – US expansion is underway and it has pulled out of China. Perhaps against the growth, the pessimism looks a little over-cautious, but with that basic rating seemingly overblown and trouble suggesting where the share price might go next, there’s some validity in the caution.
Thursday
Tesco – Sell
Questor said investors should continue to avoid Tesco. Wednesday’s results may have heralded a return to growth, but the accompanying line was that the turnaround will still take some time to execute. The company is now walking a fine line – cutting process to drive sales growth, but having to maintain profitability, too. Some good progress is being made in terms of tackling the debt pile, but the prospect of discount rivals making another assault on prices remains a concern. Even after yesterday’s slump, shares still trade on a multiple of 22 times – and that’s still too rich for the column.
Performance of stock over 3yrs
Source: FE Analytics
Friday
Burberry – Sell
Earlier this morning, Questor recommended selling Burberry. Shares slumped yesterday off the back of a second-half trading update, with sales in Asia clearly causing concern. The numbers also lacked any degree of certainty over the timing of a recovery, adding to investor woes. Even after this sell-off, the column said the 18 times multiple on the stock is far too aggressive and this should be closer to 12 times. The advice to dump the stock has been on the table from Questor for some time and evidently that’s not going to change any time soon.
