The six stocks I suggest are worth a look at are:
National Grid – suitable for lower risk investors seeking income
National Grid is a power and gas distribution company whose principal operations are in the UK and the US. This is a group that deals with everyday necessities for which there is constant demand resulting in relatively steady earnings and cash flow streams. A regulated business, National Grid signed an eight year agreement in 2013 with their regulator which was seen as important for the company’s future and improved confidence in the group.
More recently, at the back end of 2016, the group confirmed that it would be selling a majority stake in its gas distribution business and returning £4bn of the £5.4bn sale to shareholders likely in the form of a special dividend, with the remainder of the money being used to reduce debt in Q2 of 2017. There continues to be progress and a better outlook for its US operations and National Grid continues to benefit from recent weakness in sterling. We have long been fans of the company for income seekers. It has an attractive dividend yield which will grow at least in line with inflation.
Royal Dutch Shell – suitable for lower/medium risk investors seeking income
Royal Dutch Shell is the largest listed company in the UK. It explores for, produces and refines energy products, owning and operating filling stations worldwide. In recent years the company has been going through some major capital investment programs, which should lead to cost efficiencies, increased production capacity and higher cash flows.
While the group’s upstream business is suffering from lower oil prices, downstream parts of the business such as refining are doing better and helping to mitigate the earnings fall. Production remains encouraging compared to the previous year and the company continues to look at offloading non-core operations and build high potential exploration acreage, including shale and deepwater fields. Royal Dutch Shell is a company for investors looking to benefit from a longer term recovery in the oil price.
BAE – suitable for medium risk investors with a balanced portfolio
The cutbacks in defence spending by the US and UK which hurt the sector so badly in recent years looks likely to be behind us, reinforced by reports that new US President Donald Trump reportedly wants to boost defence spending by $500bn to $1tn in the region. This can only be good news for the likes of BAE Systems which develops, delivers and supports advanced defence and aerospace systems by manufacturing military aircraft, surface ships, submarines, radar, avionics, communications, electronics and guided weapons systems.
Whilst there are limited prospects for growth in the UK, the earnings visibility here looks clearer as contracts seem to be long in length and fairly large. Moreover, investors should appreciate that the UK government’s strategic defence review set out plans to spend £178bn over the next ten years.
The shares have been doing well lately with the company seeing a benefit from currency weakness. In addition, investors should note the shares favour well compared to the peer group and they pay an attractive dividend yield of around 4.0%.
Inmarsat – suitable for contrarian medium risk investors with a balanced portfolio
Inmarsat operates a global communication satellite system, providing voice and high speed data services on a worldwide platform for a number of major corporations. There seems to be an ongoing interest in technology and communication companies amongst investors and, although the group has had a difficult period lately, we believe that longer term attractions still remain.
The aviation division is still experiencing high demand and investors should appreciate government spending is picking up. In addition, Inmarsat is currently developing software which it hopes will enable it to deliver seamless global coverage at speeds of up to 50MB/s for users in governments, maritime, energy, enterprise and aviation sectors, giving it a competitive edge with faster broadband speeds. The dividend yield above 4% also remains attractive for investors.
Intertek – suitable for medium risk investors seeking growth
Intertek is a multinational testing, inspection and certification services company which focuses primarily on consumer products (toys, textiles shoes) and commodities. It carries out assessments based on safety, regulatory, quality and performance standards at more than 1000 laboratories and offices worldwide. Through years of acquisitions and steady growth, the company has built itself into a £5bn giant in its sector with a high level of safety and quality standards in developed countries generating a good revenue source for the company.
Despite slow global economic growth, the group has been experiencing increased demand for its inspection and testing services from many different sectors. Whilst investors should be aware that parts of the business have come under pressure in recent years due to the tough environment in the commodities sector, we consider the company’s activities as being relatively defensive, which is an attractive prospect for longer term investors.
The continued global implementation of safety, quality and energy efficiency standards, regulatory requirements and legislation in 2017 can only be of benefit to Intertek.
Randgold Resources – suitable for higher risk investors seeking growth
In an uncertain macro-economic and geopolitical environment, investors are keen on exposure to gold and gold miners and we would highlight Randgold Resources as our preferred option. This is a gold miner whose principal operations are in Mali, a country with significant levels of political instability. The tensions have in the past impacted confidence in the company’s share price, but investors should appreciate the operations on the ground remained largely unaffected. The company has been fairly consistent in increasing production, producing record amounts of gold each quarter.
We reduced our recommendation to a Hold after the shares breached £90 immediately after the EU referendum. However, we have always liked the company as it is a well-run, low cost producer that finances exploration and expansion from cash flows rather than debt. With the shares once again trading around £65 a share, and combined with our thoughts above, we feel that there is better value now and have returned to our ‘buy’ recommendation but would suggest the company is suitable for investors looking for capital growth and willing to accept a higher level of risk.
Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest.