Every month, we ask our freelance writers to share their top ideas for stocks to buy with investors — here’s what they said for May!
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British American Tobacco
What it does: British American Tobacco is a tobacco manufacturer that markets its products worldwide under brands including Lucky Strike
Should you invest £1,000 in BAE Systems right now?
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By Christopher Ruane. The British American Tobacco (LSE: BATS) share price has still not recovered from the company’s massive non-cash write down last year of the long-term value of key brands.
Lately, the share has been trading within 5% of its 5-year low. A weak price and growing dividend mean that the FTSE 100 company now offers a dividend yield close to 10%.
Are there risks that help explain that price and high yield? Certainly. Cigarette sales are in long-term decline, the company is saddled with a lot of debt and regulatory pressure continues to add uncertainty to the outlook for non-cigarette product formats.
But the business owns a stable of well-established premium brands and has significant pricing power. It continues to sell huge, though declining, volumes of cigarettes for now and has been growing its non-cigarette business rapidly in recent years.
The balance of risk and rewards here looks favourable to me.
Christopher Ruane owns shares in British American Tobacco.
Coca-Cola HBC
What it does: Coca-Cola HBC makes some of the world’s favourite soft drinks including Coke, Fanta and Sprite.
By Ben McPoland. I really like the look of Coca-Cola HBC (LSE: CCH) stock right now. The Footsie firm bottles and sells drinks for The Coca-Cola Company and other beverage firms in 29 countries. These are spread across emerging, developing and established markets, ranging from Italy and Poland to Nigeria and Egypt.
Net sales revenue increased 10.7% to €10.2bn last year, the company’s third straight year of double-digit growth. Earnings per share rose 21.8% to €2.08 while the dividend was hiked 19%. It currently yields 3.3%.
As I write, the forward P/E ratio is only about 13. That looks like a bargain to me given the firm’s significant presence in emerging markets, where rising incomes and increasing urbanisation trends are increasing consumer demand for branded beverages.
A major economic downturn is a risk here because that could lead to less demand for soft drinks. But this looks like a steady long-term compounder trading at an attractive valuation. I may well invest in the coming weeks.
Ben McPoland does not own shares in Coca-Cola HBC.
ITV
What it does: ITV is the largest commercial broadcaster in the UK. In recent years, it has started to provide streaming and content creation services.
By Charlie Keough. I really like the look of ITV (LSE: ITV) shares for May. At 70.4p (as of 25 April), I see the stock as great value for money.
That’s why I recently snapped up some shares. And with any spare cash, I’ll do the same in May.
The company has underperformed in recent times. The traditional TV advertising market has been flagging. Racing inflation has led to ITV’s customers reducing spending.
But trading on nine times forward earnings, I sense an opportunity. To some investors, ITV may look like a value trap. But I’d argue otherwise.
It has made solid strides with its digital transformation and is on track to deliver at least £750m of digital revenues by 2026. Last year it posted £490m in revenue.
Alongside this, it’s cutting costs. So far, it has delivered £130m in annualised savings and is on the path to hitting its £150m target by 2025, a year early.
There’s also its juicy 7.1% dividend yield. That’s up there with one of the highest on the Footsie.
Charlie Keough owns ITV shares.
Kingfisher
What it does: Kingfisher owns the B&Q and Screwfix businesses in the UK and similar home improvement retailers in France and Poland.
By Roland Head. After a boom during the pandemic, demand for home improvement has eased over the last 18 months.
Kingfisher (LSE: KGF) is facing particular pressures in France, where its Castorama business has underperformed. However, the group’s UK operations are still trading relatively well and gained market share last year.
Actions are underway to fix the problems in France. In the meantime, Kingfisher remains cash generative and has minimal debt.
Broker forecasts following the company’s recent results price the shares on around 12 times 24/25 earnings, with a dividend yield of just under 5%. The latest guidance from management suggests to me that the dividend should remain well supported by free cash flow.
Home improvement sales are linked to housing market conditions, so there’s a risk that things could get worse before they improve.
However, I think Kingfisher’s shares are already priced for bad news. In my view, the stock is well positioned for a recovery.
Roland Head does not own shares in Kingfisher.
QinetiQ Group
What it does: QinetiQ Group supplies defence and security products and services chiefly to the UK, US and Australia.
By Royston Wild. Defence giant QinetiQ Group’s (LSE:QQ.) share price slumped in April following the release of disappointing financials. I think this represents an attractive buying opportunity.
Investors have been spooked by recent softness at the FTSE 250 firm’s Global Solutions division. Yet I think this could be an overreaction as, largely speaking, the FTSE 250 firm continues to perform very strongly. QinetiQ’s book-to-bill ratio stood at 1.1 times during the March quarter, reflecting robust demand for its technologies.
City analysts think earnings here will rise 11% in each of the next two fiscal years. This means that, after that recent price weakness, QinetiQ shares trade on a forward price-to-earnings (P/E) ratio of just 11.1 times.
This makes the company much cheaper on paper than many other popular UK defence shares. The FTSE 100’s BAE Systems and Rolls-Royce, for instance, trade on higher earnings multiples of 19.1 times and 26.7 times respectively.
I think QinetiQ could be a great way for investors to play the booming defence industry.
Royston Wild does not own shares in any of the shares mentioned.
