Ed Bowsher looks at three attractive shares that are popular with leading fund managers.
Every six months I like to examine the portfolios of some of the UK's leading fund managers and see if any interesting share ideas emerge.
So once again, I've visited Citywire to see who the top performing managers are and then I've looked at their portfolios via Trustnet or the websites of individual fund management companies.
Here are three large-cap shares that caught my eye:
Balfour Beatty
(LSE: BBY)
Balfour Beatty is a construction and maintenance company with a strong track record and a healthy order book. It has businesses in rail, road, and buildings, and operates across the world. Much of Balfour's work is for the public sector and it's been a beneficiary of the trend towards PPP (Public Private Partnerships) in the UK. That trend is now spreading to other countries.
Balfour closed last night at 420.5p (£1.8bn market cap), which puts the company on a price/earnings (p/e) ratio of 15 for this year.
I think that's reasonable given that Balfour has many long-term contracts which give good visibility for revenue and profits. Indeed Balfour said its order book had reached £8.5bn at the end of June -- an impressive sum given that total revenue last year was £3.8bn. The balance sheet is also strong with net cash of £353m.
Sure, the pre-tax profit margin is low at 2%, but the future looks good for Balfour so I suspect it will be a decent performer over the next few years.
HBOS
(LSE: HBOS)
Banks currently trade on low p/e ratios because investors are worrying that the businesses will suffer when the economy slows down -- particularly from bad debt.
So you could argue that HBOS's current p/e of 11 isn't that attractive. However, I'm more bullish. If we did go into a recession, HBOS would certainly be affected, but probably not that badly. After all, a big chunk of its loan book comprises mortgages which are better bets than unsecured loans.
And HBOS doesn't appear to have any serious problems with credit quality right now. Its impairment losses were only 0.24% of average customer advances in the first half, up from 0.23% a year earlier. This figure is significantly lower than for several rivals including Barclays
(LSE: BARC)
and HSBC
(LSE: HSBA)
.
What's more, HBOS, which owns the Halifax and Bank of Scotland brands, is more than just a mortgage lender. It's growing its UK retail banking business and is even opening new bank branches. On top of that, the bank has a significant presence in life assurance and corporate banking, and owns some overseas operations, too.
So yes, a nasty recession or falling property prices are always a worry, but given HBOS's growth potential and its diversified operations, I think it still looks good at £10.70.
Xstrata
(LSE: XTA)
I highlighted mining giant Xstrata in a Fund Manager Favourites article a year ago and the share price has risen 67% since then. It closed last night at £22.66.
Given high commodity prices over the last year, the rising share price isn't that surprising. Xstrata is throwing off cash -- analysts expect cashflow per share of 324p a share this year. However, compared to most of its peers, Xstrata is hanging on to more of its cash and buying assets, in particular Falconbridge, the Canadian copper and nickel group.
So if commodity prices stay high in the next few years, Xstrata may benefit more than most. What's more, chief executive Mick Davis has an impressive track record over the last five years.
No wonder several top-performing fund managers have significant stakes.
On the other hand, if metal prices fall significantly from here, Xstrata's share price would suffer too.
> Money Talk: The Best Commodity | More Fund Manager Favourites | A Load Of Bankers
Ed is a former employee of Citywire and owns shares in the website's parent company.
