GlaxoSmithKline, Randgold Resources and Findel could be attractive stock picks for the looming ISA season and they all bring something different to portfolios, according to The Share Centre.
Ian Forrest, investment research analyst at The Share Centre, pointed out that there are “clear benefits” for holding income, growth and value stocks within a portfolio. He added that owning a mix of these stocks could be advantageous to most investors.
He explained: “On a real top line basis, income stocks are companies that are slightly more established so don’t need to put cash back into their business, so instead they give it back to investors, most likely in the form of dividends.
“Growth stocks on the other hand tend to use cash flow to invest back into the business so offer investors the chance to join them on a journey. All the while, value stocks offer savvy investors the chance to pick up a bargain and are positioned as companies that are priced less than the value of their assets or at a valuation below their peers.
“We don’t favour one of these investment objectives over another and instead believe a mixture of all of the above may offer investors the diversification required in order to protect a portfolio as well as positioning themselves in case an opportunity arises.”
In this article, we find out which two FTSE 100 stocks for each bucket that the analysts at The Share Centre think look especially attractive.
For income investors: GlaxoSmithKline & National Grid
Starting with income stocks, Forrest highlighted that drug giant GlaxoSmithKline is a stalwart of many portfolios thanks to the defensive nature of the pharmaceutical sector.
Glaxo’s share price dropped in 2017 after chief executive Emma Walmsley suggested the firm could carry out some large acquisitions, which led to concerns that the dividend could be at risk.
Performance of stock vs FTSE 100 over 5yrs
Source: FE Analytics
“However, Glaxo is a very cash generative company and is committed to paying dividends and returning capital through share buybacks. We are therefore viewing this fall back as an opportunity in terms of a more attractive entry point for income investors,” The Share Centre analyst said.
“Prospects from the group's R&D are promising and should help drive organic growth and its increasing exposure to emerging markets means management remain hopeful for solid growth up until at least 2020.”
Forrest also said power & gas distribution company National Grid could be an attractive option for income investors, given the fact that there is a constant demand for energy – which results in steady earnings and cashflow streams for the company.
“A regulated business, National Grid signed an eight-year agreement in 2013 with its regulator which was seen as important for the company’s future and improved confidence in the group,” he added. “We have long been fans of the group, specifically for income seekers, and this is reaffirmed by a prospective 2019 yield of around 5.4 per cent.”
For growth investors: Ashtead & Randgold Resources
Turning to growth stocks and The Share Centre likes Ashtead, which rents a full range of construction and industrial equipment across a wide variety of applications to a diverse and global customer base.
As the chart below shows, the stock has risen significantly over the past five years – it has posted a 347.58 per cent total return, compared with a 39.09 per cent rise from the FTSE 100. This share price appreciation has come as the company has expanded its operation, with a particular focus on growing in the US.
“Investors should appreciate it has an impressive track record of growth over the last four years and trading is forecast to continue courtesy of better infrastructure spending and good underlying economic growth in its two main markets, the US and UK,” Forrest said.
“Across the pond, Ashtead has only a 7 per cent share of the market and is looking to double that, targeting 15 per cent through both organic growth and acquisitions. All of this combined with the strong earnings momentum it has developed and the potential for further improvement in cash flow makes this an attractive stock for medium-risk investors.”
Performance of stock vs FTSE 100 over 5yrs
Source: FE Analytics
The second stock pick for growth investors is Randgold Resources, which has emerged as one of the best performing gold miners around the world. The Share Centre thinks this could continue to be the case over the medium-to-longer term.
“Why so? Well, in an uncertain macroeconomic and geopolitical environment, investors are keen on exposure to the precious metal. The price of gold is gaining momentum and the main drivers for this continuing in the near term could come from the renewed stress in the financial system, tensions in the Middle East, emerging market central banks as they attempt to diversify their foreign exchange exposure and increasing demand for gold jewellery, particularly in Asia,” Forrest explained.
“Brexit, the unconventional US president and upcoming elections in Europe will add to the geopolitical uncertainties and therefore to the attractiveness of gold, which is why we would suggest this stock could be a golden growth opportunity.”
For value investors: Lookers & Findel
The Share Centre also highlighted car dealership chain Lookers as a potential holding for value investors.
The company started life as a bicycle shop in 1908 but it has grown into a company that operates a number of car-related businesses, principally new and used car dealerships and aftersales. In addition, it is active in a number of other areas such as leasing, vehicle rental and agricultural parts sales.
“The shares underperformed the market in 2017 and now trade on a 2018 price/earnings [P/E] ratio of 6.5 which is lower than its peers, while the prospective dividend yield of 4.0 per cent is about average for the sector,” Forrest said. “We’d steer investors towards the group primarily due to the relative value of its shares at current levels, the diverse income streams and potential for further progress.”
Performance of stock vs FTSE 100 over 5yrs
Source: FE Analytics
The Share Centre’s final picks is Findel, which is a multi-channel retailer sells products such as textiles and bedding, electrical, furniture, nursery products, gifts, and greeting cards through its ‘Express Gifts’ business to musical equipment and science-related items under its education business.
“The company recently highlighted a ‘record Christmas’ as a result of an 11 per cent rise in product sales. The shares have made a good start to 2018 but still trade on a 2019 P/E of just 8.4, which is attractively low relative to other retailers with mostly online sales,” Forrest said.
“Findel is expected to see earnings growth over the next two years at least. The price-to-book value of 1.5 times is about average relative to peers.”