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jamieclawhorn · 8 years ago

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Top stocks for February

We asked our writers to share their top stock picks for the month of February, and this is what they had to say:

Paul Summers: Cineworld

According to cinema operator Cineworld (LSE: CINE), more than 100 million people passed through its doors last year. Although its shares are up 20% over the last 12 months, I think there could be more upside ahead given the promising list of films due out in 2017, including Star Wars VIII, the Lego Batman Movie and Beauty and the Beast.

With excellent free cash flow, decent operating margins and an easily covered forecast yield of 3.4%, a P/E ratio of 16 for 2017 still looks reasonable. Assuming recent momentum hasn’t been lost, I suspect the shares will continue to rise before and after full-year results in early March.

Paul Summers has no position in Cineworld.

Harvey Jones: Diageo

Spirits are steadily rising at global drinks giant Diageo (LSE: DGE) after a dry few years. Last week’s half-year sales figures for the Guinness, Pimm’s and Smirnoff owner showed much-needed improvements, particularly in the key US spirits market, where it has disappointed lately. Organic growth picked up across all regions with a 4.4% increase in net sales, beating consensus of 3.1%.

Boss Ivan Menezes has faced struggles since taking the helm but can now talk confidently of “building a stronger, more consistent, better performing company”. As ever, the dividend looks low at 2.6% but policy remains progressive with a recent 5% hike. My only concern is the premium valuation of 25 times earnings, tempered by the fact that Diageo always trades on a high price/earnings ratio. Forecast earnings per share of 18% in the year to 30 June 2017, followed by another 9% in the year after, suggest more good cheer to come.

Harvey does not own shares in Diageo.

Peter Stephens: GlaxoSmithKline

Brexit negotiations are set to commence shortly and this may cause investor confidence in the UK’s economic outlook to come under pressure. As such, sterling could weaken in the coming months.

Therefore, GlaxoSmithKline (LSE: GSK) could be a beneficiary, since it reports in sterling but is a global business. The company’s diverse business model and strong, balanced pipeline of new treatments also enhance its defensive characteristics. At a time where the geopolitical outlook is fluid and unpredictable, defensive shares could become more popular.

Furthermore, a yield of 5.3% from a dividend covered 1.4 times by profit should retain investor interest as inflation gradually rises to a forecast 3% in 2017.

Peter Stephens owns shares in GlaxoSmithKline.

Rupert Hargreaves: KAZ Minerals

Shares in KAZ Minerals (LSE: KAZ) have staged a dramatic comeback this year. After falling 95% from their peak, the shares have added nearly 300% over the past 12 months thanks to improving sentiment towards the mining sector. I believe this rally can continue.

KAZ has also benefited from the rise in copper prices over the past 12months. Specifically, the price of one tonne of copper has risen from $4,500 in January 2016 to nearly $6,000 today. Off the back of this, analysts expect KAZ to report earnings per share growth of 185% for 2017 and 40% for 2018. Based on these forecasts, the shares are currently trading at a 2018 P/E of 6.2.

Rupert has no position in Kaz Minerals.

Edward Sheldon: Keller Group

Value has become harder to find recently; however, one company that has caught my eye is Keller Group (LSE: KLR).

Keller is the world’s largest independent ground engineering specialist, focusing on providing technically advanced and cost-effective foundation solutions. The foundation specialist is a key player in the US, generating 54% of sales from this region, and as such, the company looks well placed to benefit from Donald Trump’s infrastructure spending plans.

A slowdown in the Asia Pacific region resulted in Keller warning on near term profits in October but, for investors with a medium- to long-term time frame, I believe Keller looks good value on a forward looking P/E ratio of 10.7, falling to just 9.1 for 2018.

Edward Sheldon has no position in Keller Group.

Jack Tang: Provident Financial

Financial stocks have had a tough year in 2016, but I’m not shying away from the sector — I’ve picked Provident Financial (LSE: PFG) as my top stock for February.

While I acknowledge that slowing UK growth is a risk, and a key reason behind the stock’s weakness — default rates for sub-prime lenders tend to be more sensitive to economic conditions — I believe Provident is well cushioned by its robust margins and low operational gearing.

The lender has an enviable dividend track record, having raised its dividends by an average annual rate of 13.8% since 2011. The stock currently yields 4.5% and, looking forward, dividends are set to grow by roughly 9% in each of the next two years.

Jack Tang has no position in Provident Financial.

G A Chester: Sage Group

Sage Group (LSE: SGE) may not be the most glamorous technology stock — it provides accounting, payroll and payment systems — but it’s a FTSE 100 blue chip with millions of customers worldwide.

The company’s strategy to reinvigorate growth is working. Last year’s results came in ahead of City expectations and I think it could surprise on the upside this year, too. As such, I view it as good value on a (City consensus) P/E of 19 with a handy 2.6% dividend yield.

The CEO and chairman bought shares last week — their first purchases since 2015 and 2014 respectively.

G A Chester has no position in Sage.

Royston Wild: Taylor Wimpey

A steady flow of positive trading updates from London’s throng of listed housebuilders has seen the likes of Taylor Wimpey (LSE: TW) edge gradually away from the summer’s post-referendum lows.

Sure, this momentum may have moderated more recently, but I reckon another positive release from Taylor Wimpey — the firm’s full-year results are currently slated for February 28th — could prompt a fresh trek higher.

And fizzy statements from Barratt Developments and Persimmon in the days leading up to Taylor Wimpey’s update could facilitate extra share price gains across the entire sector.

Furthermore,Taylor Wimpey’s ultra-low valuations certainly leave scope for a fresh buying frenzy in the days ahead, the builder dealing on a P/E ratio of 9.1 times and carrying a dividend yield of 8.3%.

Royston Wild has no position in any shares mentioned.

Kevin Godbold: Utilitywise

UK-facing energy and water consultancy Utilitywise (UTW) operates as an intermediary between energy and utility suppliers and the commercial market. The firm has an impressive record of rising profits, and over a six-month view, the stock has momentum.

Percentages in double figures for return on capital and equity, and for the operating profit margin, bolster the case for quality. Last year’s result showed good support for profits from cash inflow, yet the stock looks cheap, with today’s share price around 178p throwing up a forward price-to-earnings rating just under nine for the year to July 2017. I think shares in Utilitywise look poised to perform well in February and during 2017.

Kevin Godbold has no position in Utilitywise.

Bilaal Mohamed: Vectura Group

My top stock for February is FTSE 250-listed pharmaceuticals business Vectura Group (LSE: VEC). The Chippenham-based drugmaker is an industry leader specialising in inhaled therapies for the treatment of respiratory diseases, with a current market value of around £900m. Vectura starts 2017 in a very strong position, with sustained growth in recurring revenues driven by seven recently launched inhaled products, and aided by last year’s acquisition of rival SkyePharma.

After a 20% share price slump in 2016, Vectura is trading on a very attractive valuation, with earnings expected to double over the next two years, bringing the P/E ratio down to just 10 by the end of 2018. I believe the group’s shares are significantly undervalued given its longer-term growth outlook.

Bilaal has no position in any shares mentioned.

Ian Pierce: Virgin Money

Shares of domestic retail banks are still trading well below pre-Brexit vote prices, including those of challenger bank Virgin Money (LSE: VM). However, with economic data post-Referendum showing the economy continues to hum along nicely, I think this was an overreaction from the market.

Shares of Virgin Money are priced at exactly book value, implying no growth is baked into share prices. But, fast growing mortgage and credit card operations and underlying return on equity of 12.2% makes Virgin a diamond in the rough. With higher growth potential and none of the high operating costs or legacy misconduct issues of larger rivals, Virgin Money is the only bank share I’m interested in.

Ian Pierce has no position in Virgin Money.

Roland Head: Wizz Air Holdings

Central and Eastern Europe-focused budget airline Wizz Air Holdings (LSE: WIZZ) reported a 17.4% increase in passenger numbers during the first half of last year. Pre-tax profits for the period rose by 39.1% to a new record of €253.3m.

The group’s shares have bounced back have bounced back from their post-referendum lows, but remain nearly 10% below their 52-week high of 2,021p. This has left the stock trading at a modest valuation discount to budget rivals such as easyJet and Ryanair.

Wizz Air’s third-quarter trading statement is due on 1 February. A strong performance could drive the shares higher ahead of the group’s full-year results.

Roland does not own shares of any company mentioned.

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