The bank holiday means this week’s share-tip roundup from Trustnet Direct is smaller than normal.
With the FTSE taking another battering, the shorter week may have provided some comfort to investors and given traders the opportunity to pause for breath. However, the best time to buy is often after the market has fallen.
Here are two “buy” recommendations to mull over while the market is at a depressed level, as while as three “sell” recommendations and one neutral view.
Wednesday
TalkTalk – Hold
Questor kicked off the week’s share-tip roundup by recommending investors hold on to TalkTalk. There’s been a shake-up in terms of pricing for the UK residential phone market and although TalkTalk may still be the cheapest, the gap is closing significantly. The company also suffered a hefty slug of reputational damage last year in the well-reported data breach, a saga that is likely to cost £15m in lost revenues and £45m in exceptional charges, leaving confidence in the company in tatters. The event was also seen as responsible for driving 95 per cent of customer attrition last year, but the most recent set of results wasn’t the disaster some had predicted and analysts remain bullish on the stock. There are questions as to whether the company is spending enough on cyber defence as another breach could put it out of business, but despite this, the column thinks it’s too early to hang up yet.
Just Eat – Sell
Tempus said investors should avoid Just Eat. The online takeaway food portal is seeing slowing growth, but this is a natural consequence of the company maturing. It has managed to hike commission levels from existing customers by another percentage point, but the risk now is that overseas competitors start eroding market share. There’s also the fact that founder investors are still responsible for a large overhang of stock and it also remains highly rated. The column said this isn’t one to chase for now.
Thursday
Royal Dutch Shell – Buy
Tempus tipped Royal Dutch Shell as an income play. The company is currently paying a 7.5 per cent dividend yield, but this is a result of paying out £2 to shareholders for every £1 that comes through the door. Although that may look unsustainable, the company is planning a raft of disposals over the next two to three years – which could possibly be long enough for oil prices to recover and the dividend to be covered once again.
Performance of stock over 1yr
Source: FE Analytics
Virgin Money – Buy
Questor recommended investors buy Virgin Money. Shares may be down 9 per cent since the start of the year, but compared with the sector as a whole – off 17 per cent – this is a solid performance. As a pure retail bank, Virgin has been unaffected by the turmoil that has hit investment banks, while changes in property lending habits have again taken a bigger toll on specialist providers. The bank plans to move into serving the SME market as well, leading the column to conclude it looks mistreated at the current price.
Friday
Inmarsat – Sell
Earlier this morning, Questor said investors should sell Inmarsat. Downturns in the energy and maritime markets have led the company to downgrade its outlook for full year profits, leaving the stock to be one of the biggest fallers in the FTSE 100 yesterday. However, the column said this isn’t a buying opportunity – it is time to step back and wait for these key markets to recover. Longer term, the picture still has great potential, but while the global economy looks shaky, this is one to avoid.
Sage – Sell
Tempus recommended avoiding Sage for now. The company is progressing on a measured course – the rather dull legacy business of supplying entrepreneurs and small businesses with software provides a stream of recurring revenues, but little in the way of growth prospects. Shifting this work to the subscription model offers some upside, while the other side of the business – cloud-based data on the move – is unproven. There’s some scope for cost cutting, but the risk is that given the stock now trades on a 22 times multiple, the outlook is already fully priced in to the shares and the 2 per cent dividend yield doesn’t give any great reason to jump in now.
