20th February 2014
Helal Miah, investment research analyst at The Share Centre, picks six stocks for investors this ISA season and explains what they have to offer…
National Grid (FTSE 100) – a lower-risk option for income-seekers
National Grid has overcome some regulatory issues in 2013 and is looking to invest roughly £26bn over the next seven years on its infrastructure. The management is looking to improve the performance of the US operations. The UK political environment should also be less significant for the 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 and pays a fairly attractive dividend yield just above 5%, which the management intends to grow in line with the rate of inflation.
Amec (FTSE 100) – a balanced and medium-risk option
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.
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-to-earnings basis, Amec looks undervalued compared with the peer group and a dividend yield near 3.5% is attractive.
Booker Group (FTSE 250) – a medium risk growth pick
Cash-and-carry company Booker has delivered a steady rise in sales and earnings during the past five years. 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.
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 to include the improvement of the cash-and-carry business centre experience and to harness the internet through Booker Direct, 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 its peers. Drip feeding on share price dips would be worth considering.
Regus (FTSE 250) – higher-risk for investors seeking growth
“Regus is an international business with a broad geographical spread and is also the largest business of its type in the world. It provides flexible and mobile office spaces, desks with computers, meeting and conference rooms, which are ideal for many small or start-up businesses. Its services are also useful for large established corporates looking to expand their geographical reach. 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 (FTSE 100) – a higher-risk option for those seeking growth
During the past decade, Tullow has had an extremely good success rate in finding oil in various regions of the world, especially in Africa. 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.
“This would certainly be a contrarian investment opportunity with the shares declining more than 40% since the summer of 2012. 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.”
AGA Rangemaster (AIM) – high risk growth stock
“AGA Rangemaster is a small cap AIM stock that manufactures high end cooking appliances and the financial crisis had a major impact on the company’s fortunes. 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 pickup in activity, especially in a recent quarterly management report that suggests “the tide is turning, the mood amongst customers is better and there is a buzz about the new products”.
“Both the US and domestic economy are seeing a strong pick up in housing markets which should continue to support AGA’s recovery. The group is targeting 50% of sales from outside of the UK. Currently the geographic split is roughly 63% UK, 22% Europe and the remaining 15% of sales coming from the rest of the world. The collaboration with Vatti Group to develop a range for the high growth Chinese market should help reach this target. 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.”