Why I’m Buying Flybe Group PLC, Fenner plc And BHP Billiton plc

Roland Head explains why Flybe Group PLC (LON:FLYB), Fenner plc (LON:FENR) and BHP Billiton plc (LON:BLT) are in his portfolio.

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It’s easy to be bearish about stocks at the moment. But today I’m going to look at three stocks I own myself and rate as a buy, Flybe Group (LSE: FLYB), Fenner (LSE: FENR) and BHP Billiton (LSE: BLT).

All three firms issued trading updates today, with mixed reactions. Here’s my take on today’s news and why each company remains a buy.

Flybe

Small-cap airline Flybe is one of today’s biggest risers. The firm’s shares climbed 10% to 78p this morning, on news that passenger numbers rose by 9.8% to 2.1m during the first quarter, while passenger revenue rose by 11.5% to £147.7m

Flybe continues to suffer from having seven Embraer E195 jets on its fleet that it cannot use. The firm is actively pursuing solutions to this problem but if it fails, the maximum cost could be £80m over four years.

In my view, this is the biggest factor preventing the shares re-rating. Yet Flybe’s cash balance of £195m means it can afford this loss, given that its underlying business is now profitable.

Flybe chief executive Saad Hammad used to work at easyJet. In my view, he is doing a good job of transforming Flybe into a profitable short-haul airline, focused on niche routes with little competition.

Flybe shares have risen by 37% since the start of May, but I think that there will be more to come when the surplus plane problem is resolved.

Fenner

Industrial belt and hose specialist Fenner counts many of the world’s biggest oil and mining firms among its customer base. Unfortunately they aren’t buying as much as they used to. In a trading update this morning, Fenner said that demand for hoses used in hydraulic fracturing (fracking) “has remained at very low levels”.

Fenner said that full year Group earnings are now likely to be “slightly below previous management expectations”. Interestingly, Fenner shares didn’t fall when markets opened. In fact, they rose slightly.

I can see two reasons for this. Firstly, the firm’s industrial and medical businesses are performing well, thanks to strong demand and new contracts.

Secondly, I believe today’s bad news is already reflected in Fenner’s share price. With a prospective yield of 6.5%, which current forecasts suggest will be maintained this year, the shares also offer a generous income and remain a medium-term buy, for me.

BHP Billiton

Shares in BHP Billiton fell by 3.8% this morning, following a poor trading update.

BHP said that group production rose by 9% over the year to June 30, but the firm expects exceptional costs relating to its copper and petroleum businesses to wipe between $350m and $650m from last year’s profits.

Prices for all of the group’s major commodities have fallen heavily over the last year, but so far, BHP has said that it will maintain its dividend. This gives the firm’s shares a prospective yield of about 6.5%.

The question is whether we are near the bottom for iron ore, oil and copper.

I suspect we might be. Iron ore production growth is slowing, and according to figures from Credit Suisse published in the FT this week, in real terms, the price of iron ore is now only 14 per cent above its 115-year average of $39 a tonne. This doesn’t seem expensive to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Flybe Group, Fenner and BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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