We asked our analysts to share their top stock picks for the coming month. You can find more recommendations here.
Roland Head: Dart Group
Jet2.com owner Dart Group (LSE: DTG) is expected to report record earnings for its current financial year, which ends on 31 March.
The shares trade on just 11 times forecast earnings for the current year, but the outlook is less certain for 2016/17. Current forecasts suggest profits could fall this year as margins drop. However, Dart Group has a habit of beating expectations, and could do so again. A trading statement in March 2015 saw the shares jump 19% in one day.
There’s reasonable downside protection, too. At the half-year point, Dart had net cash worth 158p per share. Chief executive Philip Meeson also has a 38% shareholding in the firm, suggesting that his interests should be closely aligned with those of shareholders.
Roland has no financial position in this company.
Prabhat Sakya: International Consolidated Airlines
International Consolidated Airlines Group (LSE: IAG) owns the brands British Airways and Iberia. It is Britain’s leading airline, and it is my pick for March 2016.
Why? Because this company is benefitting from crashing oil prices more than any other firm in Britain. I believe that oil prices will stay low for years to come, as suppliers from the Gulf to Russia and shale oil producers in the States compete with each other to pump out more and more of the black stuff.
Crude’s historically high prices have meant that the airlines have struggled to turn a profit. But suddenly IAG and competitors like easyJet have been booming as one of their main costs has tumbled in price. And a predicted 2015 P/E ratio of 10.4, with a dividend yield of 2.61%, looks tempting. I think this one of the best long-term buys in the FTSE 100.
Prabhat owns none of the shares he has written about in this piece.
Alan Oscroft: Lloyds Banking Group
On 25 February, Lloyds Banking Group (LSE: LLOY) did what everybody had hoped, and more — as well as a full-year dividend of 2.25p per share, there’s an extra 0.5p special dividend to provide an overall yield of 3.8% on a share price of 72p.
The bank did make a Q4 provision of £2.1bn to cover PPI mis-selling (which was higher than expected) to take its total charge to £16bn, helping drop pre-tax profit to £1.6bn from £1.8bn a year before. But the PPI debacle should be drawing to a close and shareholders were pretty happy — the price is up 28% since 11 February.With the dividend expected to rise to 5% in 2016, and with the shares on a forward P/E of only 8.2 (and dropping to 7.9 on 2017 forecasts), I reckon there’s plenty more to come.
Alan Oscroft owns shares in Lloyds Banking Group.
Rupert Hargreaves: Pendragon
Pendragon (LSE: PDG) is the UK’s largest publicly listed new and used car retailer.
Pendragon is a classic case of the market moving the share price without any regard to the underlying fundamentals of the business. Year-to-date the company’s shares have fallen by 20% despite the fact that the company announced 20% increase in underlying earnings per share and a 44% increase in the full-year dividend for 2015 two weeks ago. It seems as if the market believes these results unsustainable as 2015 was a record year for UK new car sales.
However, January saw a 3% increase in new car sales off a high base, taking the sales figure to an 11-year high. Considering this background, Pendragon’s shares look cheap as they currently trade at a forward P/E of 9.7 and support a dividend yield of 3.8%. Debt has fallen by approximately 85% during the past five years.
Rupert Hargreaves owns shares Pendragon
Kevin Godbold: Petrofac
The collapse in commodity prices is a compelling opportunity. I’m avoiding pure commodity producers, because commodity prices could slide further, and dividends seem vulnerable. However, the oil services companies provide a layer of insulation from the sharp edge of commodity price movements, because they operate further down the industry’s food chain.
I like mid-cap Petrofac (LSE: PFC), and bought shares in the firm during February. The chief executive said, “We enter 2016 with a renewed focus on our core strengths. The Group’s backlog stands at record year end levels, giving us excellent revenue visibility for 2016 and beyond.”
Petrofac has a good trading record, a strong balance sheet, just enough financial gearing to make investment for a recovery in the oil price worthwhile, and a backlog of work that should keep it trading well through the downturn. The shares could do well through March and during the rest of 2016.
Kevin owns shares in Petrofac. The Motley Fool UK owns shares of and has recommended Petrofac.
