It’s unwise to use stockbrokers’ analysts’ ratings in isolation to pick shares, but if a consensus in the City accords with our own research then it could be worth digging deeper into the situation.
Right now, City analysts mostly have a ‘buy’ rating on ARM Holdings (LSE: ARM), Ashtead Group (LSE: AHT) and Aviva (LSE: AV).
Cash-backed growth
Technology firm ARM Holdings does a good job of converting its impressive intellectual property portfolio into cash-backed earnings. First-quarter processor royalty revenue advanced more than 30% — a doubling of the growth rate achieved in the fourth quarter of last year.
ARM’s technology ends up in leading of-the-moment products such as Samsung’s Galaxy S6, which some reckon is the biggest threat to Apple‘s iPhone. However, ARM is in Apple’s iPhone as well, and in just about every smart device made by every manufacturer everywhere. In fact, ARM Holdings enjoys a greater than 85% market share in mobile application processors worldwide, a figure that takes in applications for smartphones, tablets and laptops.
ARM occupies an apparently secure trading franchise at the heart of one of the modern world’s most powerful trends. That’s why the firm sees strong revenue growth and momentum in the number of processor licences signed continues to drive expansion. Today, more leading companies are using ARM technology in their products than ever before, and we can find out how that translates into further earnings when the interim results come out around 22 July.
Cyclical growth
International equipment rental company Ashtead Group has national networks in the US and the UK. The firm rents out a range of construction and industrial equipment across a wide variety of applications to a diverse customer base. The firm reckons its equipment can be used to lift, power, generate, move, dig, compact, drill, support, scrub, pump, direct, heat and ventilate… among other things!
Recent full-year results are good. Rental revenue is up 24%, pre-tax profit up 35% and the firm raised the dividend by 33%. The firm’s chief executive puts success down to consistent execution of a well-established strategy focused on organic growth supplemented by bolt-on acquisitions. That might be so, but Ashstead operates in a highly cyclical industry so it’s essential that the firm make strong progress during the up-leg of the current macro-economic cycle if it is to weather the chill of the next downturn. Saving for a rainy day is a must.
Recovery and acquisition
General insurer and pensions provider Aviva put in an impressive first-quarter result recently with Value of New Business up 14%. The firm’s chief executive reckons Aviva’s turnaround is on track and ahead of schedule. The company’s acquisition of Friends Life is complete and all key metrics improved over the period. Although the integration of Friends Life looks set to be a challenging and complex project, the top man is confident of timely progress. He expects 2015 to be a year of continued delivery of Aviva’s turnaround plan.
Aviva’s business is flying right now, but it’s not so many years back that the firm seemed a basket case. Such are the fortunes of firms operating in cyclical sectors, and one of the most cyclical is the insurance business with its close links to the finance sector and asset markets. If companies such as Aviva tempt us in the good times when they throw off double-digit growth figures, it pays to set such performance in the frame of the broader economic cycles that prevail — Aviva, along with all cyclical firms, is not a buy-and-forget proposition.
